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David Moenning is a the proprietor of StateoftheMarkets.com. In addition to providing free and subscription-based portfolios on "State", Dave is a full-time money manager and the President and Chief Investment Strategist of a Chicago-based Registered Investment Advisory firm. Dave... More
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Daily State of the Markets
  • Is It Time To Worry? (The Charts Say No) 0 comments
    Oct 8, 2013 8:13 AM

     

     

    Daily State of the Markets
    Tuesday, October 8, 2013

    Wow, it's really getting ugly out there. After Monday's 136 point decline on the DJIA, which just happened to be the eleventh losing session seen in the last thirteen for the venerable index, the popular press was ready to declare the corner Broad and Wall a disaster area. Although the Dow is by far the worst performing index (the corrective phase has knocked off 740 points or 4.73 percent since the September 18 high) it appears that the media is attempting to dredge up the extreme emotions that surrounded the 2011 debt/budget fight.

    Below is a list of headlines seen yesterday after the closing bell on sites such as MarketWatch and CNBC:

    • "Social Security now at risk if debt ceiling isn't raised"
    • "One month shutdown may trigger 20%-30% correction"
    • "Fear gauge jumps"
    • "S&P ends at 4 week low"
    • "Dow below 15,000"
    • "Debt ceiling flashback: Remember how bad 2011 was?"
    • "China warns US 'clock is ticking'"

    To be fair, none of the headlines were overly inflammatory. None suggested that the sky is indeed falling this time around. And after actually reading the articles, it is safe to say that most were fairly accurate. However, to the average investor, someone who doesn't look at the correlations of market indices, the internal indicators, or the important technical levels, those headlines could very easily create some angst.

    And perhaps that is the point. More than a handful of politicians, including the President of the United States, has gone on record suggesting that there is too much complacency in the markets right now. The thinking is that if stocks were in panic mode, Congress might start to feel some heat. But with the so-called deadline (and it does appear that term is used loosely these days) still more than nine days away and the stock market just hanging around, the concern is that the politicians still have plenty of time to push the envelope on their game of political brinkmanship.

    Where Everyone Stands

    Let's break it down. The President cancelled a trip to Asia and called everyone to his office to announce that he was not going to negotiate this matter. The Tea Party Republicans are not going to do anything unless/until "ObamaCare" is repealed or defunded. The Democrats believe they are #winning and thus have no reason to deviate from the current game plan. And the end result is that nothing, absolutely nothing, is happening.

    Stocks/Bonds Not Worrying (Yet?)

    Each day that the impasse continues creates more doubt that a deal won't get done. Each passing day causes traders to fear the worst. And each passing day causes just about everyone in the country to fret about the politicians doing the unthinkable: defaulting on U.S. Government debt.

    While the press continues to sport emotional headlines on the subject intended to evoke a response (well, actually the goal is to get you to read the article and maybe click on an advertisement or two), the markets have actually held up pretty darn well.

    As was mentioned at the outset, the DJIA is the worst performer of the major indices. But take a look at the chart below. Is this the picture of panic? Doesn't the current selloff look orderly? Is there any technical reason to throw up one's arms run for the hills?

    DJIA Daily
    (click to enlarge)

    Now take a gander at a chart of the S&P 500. Sure, the last couple weeks haven't been great. And yes, the index did fail to hold above the old highs. However, note the thin blue line drawn onto the chat which represents the uptrend that has been intact since June (and yes, that could be extended back to March if one so desired). The point is that despite all the doom and gloom out there in the press, the index most often associated with the overall stock market is still in an uptrend.

    S&P 500 Daily
    (click to enlarge)

    Next up is the NASDAQ, also known as the "technology-ladened" stock market index. If the first question that comes to mind is whether or not this chart covers the same time period the charts of the DJIA and S&P 500 shown above, you have earned a gold star. The bottom line here is that there is no panic and no consternation evident. Heck, there isn't even a pullback to be found on the chart. As such, it is safe to say that there does not appear to be much fear in four-letter-land at this stage.

    NASDAQ Daily
    (click to enlarge)

    Ditto for the chart of the Russell 2000. While the index is struggling a bit with the uber-short moving averages plotted on this chart, the price of the index is still above the August highs, and the 18-day moving average (the teal line) is still moving up. Thus, by definition, the trend of the Russell is still positive.

    Russell 2000 (Smallcaps) Daily
    (click to enlarge)

    A similar pattern can also be seen on the chart of the Midcap index as well as the yield of the 10-year Treasury note. The bottom line is this. While the press and certain politicians may be trying to stir up some fear, there doesn't seem to be any real panic in the markets at this point in time.

    But then again, tomorrow is another day and the deadline clock is ticking.

    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...

    Same song, different day. Traders in Europe and the U.S. continue to fret about what could happen should the U.S. Government default on its debt. However, there does not appear to be any panic in the air so far today. As such, today's session will likely once again be driven by the hopes/expectations that a deal can get done sooner rather than later.

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Japan: +0.30%
    - Hong Kong: +0.89%
    - Shanghai: +1.09%
    - London: -0.77%
    - Germany: -0.06%
    - France: -0.33%
    - Italy: -0.02%
    - Spain: -0.48%

    Crude Oil Futures: +$0.31 to $103.54

    Gold: -$4.70 to $1320.40

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

    10-Year Bond Yield: Currently trading at 2.639%

    Stock Futures Ahead of Open in U.S. (relative to fair value):
    - S&P 500: -1.07
    - Dow Jones Industrial Average: -2
    - NASDAQ Composite: -1.04

    Thought For The Day...

    The dictionary is the only place where success comes before work. - Mark Twain

    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. (NASDAQ: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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