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David Moenning
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David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980... More
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Daily State of the Markets
  • A Really, Really Bad Idea 0 comments
    Aug 1, 2013 8:32 AM

    Daily State of the Markets
    Thursday, August 1, 2013

    Good Morning. Each of the past three days, I've stumbled into my office at around 5:00 am anxious to see if the futures had succumbed to some big, bad event overnight. Stocks have enjoyed a nice run of late and as such, have become overbought. Thus, the bear argument that the indices are currently ripe for a correction kept ringing in my ears. Although there have been issues with Chinese data, concerns about the Yen, and more data from across the pond than I can shake a stick at, each and every morning I was greeted with green screens in the wee hours. Each and every day then, I have expected to see the bulls produce some follow-through and for the market to finish higher. However, each and every day this week has ended in modest disappointment as the early gains have given way to program selling (btw, is there any other kind of selling anymore?) as the days wore on.

    Sure, I understand that traders have been waiting on the data... and the Fed... and then some more data this week. And no, I personally haven't put much new money to work either as waiting patiently for the new-and-improved GDP report and the FOMC announcement seemed like the prudent thing to do. And now that the all-important jobs report is just 24 hours away, I guess waiting for that makes sense too. Thus, the fact that the S&P closed Wednesday 0.40 above Monday's close shouldn't be too terribly surprising.

    However, the bears don't see this week's action as traders simply playing a waiting game and keeping prices around what appears to be (well, to me anyway) an equilibrium point. No, my furry have friends informed me, in no uncertain terms, that the action is bad. No, make that, very bad. In fact, just after the close yesterday, I was told that the "key reversal" in the DJIA is a very, very bad omen of things to come. As such, I was asked in an almost feverish fashion if I too had been selling into the close.

    "Uh, no," I responded. "Why is it that should I be selling again?" I reminded my friend that I am most definitely NOT "the fast money" and that my job is to stay in tune with the overall market trend/environment.

    "Dave, come on, buddy; it's the price action. You've got to recognize that stocks are overbought and that today's reversal spells doom for all those naive bulls," he responded.

    While I was impressed with his enthusiasm, I reminded my friend in the bear cap (as in "Da Bears!") that if I had listened to each and every one of the dire warnings that his kind had emphatically provided me with this year that I'd be out of business by now. "And if all you've got is your view of the price action over the past three days to hang your hat on, I'm afraid I'll have to once again pass on your call to sell everything now," I replied.

    Obviously frustrated with my cavalier attitude, he hastily hung up. But not before muttering something about it being my funeral.

    Had my friend stayed on the line, I would have reminded him that stock market rallies do not always have to end in abject disaster. I would have relayed to him that over my 33 years in the business there have been only two really awful bear markets - it's just that both occurred since 2000. I would have told him that the "new normal" may wind up looking an awful lot like the "old normal" now that the banking system isn't going to collapse and that Europe isn't going to implode. And I would have mentioned that historically, bull markets in the stock market happen - a lot.

    I might have also pointed out that the E.O.W. (end of the world) crowd has been abjectly WRONG over the past two years. I might have reminded my friend that the Eurozone is still standing and that Greece, as well as every other country for that matter, is still using those colorful bills and fancy coins. I might have suggested that the fear over the sequester was misplaced, that nobody seemed to care when Cyprus was a problem this year (for like a week), that the slowdown in China hasn't brought the world to its knees, and that all the "taper talk" hasn't done much to derail either the U.S. economy or the stock market. And for my big finish, I'd have tossed out the S&P's return since the beginning of 2012 (it's +34.04% for the record).

    To be fair, I recognize that such admonitions of the bear camp will likely get me in big trouble with Ms. Market. My guess is that such finger-wagging is probably good for a 2% down day or that the "key reversal" my friend was yammering on about may indeed lead to difficulty for those of us dumb enough to still be holding long positions.

    Yes, I understand that all good things in the stock market come to an end. However, I also understand that listening to the predictions of those still fighting the last war and assuming that the market is going to play out exactly like it did in 2008 has been a really, really bad idea. No, for me at least, the trick to this game is... everybody join in now... to stay in tune with what the market IS doing. To be sure, I won't get it right all the time. But at least my approach shouldn't make me really, really wrong (well, not for long, anyway).

    Looking for a disciplined approach to managing stock market risk on a daily basis? Check Out My "Daily Decision" System. Forget the fast money and the latest, greatest option trade. What investors need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets.

    Turning to This Morning...

    While the official PMI data out of China conflicted with the HSBC readings, the bottom line is the numbers weren't as bad as had been feared. This, when coupled with another injection of liquidity from the PBoC sparked a rally in Asian shares. Next up, the PMI data out of Europe wasn't half bad, and shares there are rallying as well. As you'd expect, U.S. futures are following suit and it looks like the month of August will start off on the right foot for the bulls.

    Pre-Game Indicators

    Here are the Pre-Market indicators we review each morning before the opening bell...

    Major Foreign Markets:
    - Japan: +2.47%
    - Hong Kong: +0.94%
    - Shanghai: +1.77%
    - London: +0.10%
    - Germany: +1.17%
    - France: +0.31%
    - Italy: +1.24%
    - Spain: +0.61%

    Crude Oil Futures: +$1.91 to $106.94

    Gold: +$10.60 to $1323.60

    Dollar: lower against the yen and pound, higher vs. euro

    10-Year Bond Yield: Currently trading at 2.602%

    Stock Futures Ahead of Open in U.S. (relative to fair value):
    - S&P 500: +11.67
    - Dow Jones Industrial Average: +104
    - NASDAQ Composite: +21.36

    Thought For The Day...

    If your only goal is to become rich, you will never achieve it. - John D. Rockefeller

    Positions in stocks mentioned: none

    Follow Me on Twitter: @StateDave


    The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

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