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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
  • Could A "Baby Bear" Be Around The Corner? 0 comments
    May 13, 2014 8:04 AM

    Daily State of the Markets
    Tuesday, May 13, 2014

    As the saying goes, the stock market likes to climb a wall of worry. And what a wall we've got these days, right? There is Russia, the mo-mo meltdown, China's sagging growth rate, the potential for inflation, the aging bull market, the technical divergences, the economic soft patch, the Presidential cycle, the "Sell in May" rule, and the Fed's plans to eventually pull the punch bowl from the economic and stock market party.

    So, how have stocks reacted to this litany of worries, concerns and fears? The Dow Jones Industrial Average (NYSE: DIA), the Dow Jones Transportation Average (NYSE: IYT) and the S&P 500 (NYSE: SPY) all finished Monday at fresh all-time highs, of course.

    S&P 500 Weekly

    Frustrating the Masses

    Not only does the market like to climb a wall of worry, it also has an annoying tendency to frustrate the masses at every opportunity. And according to the plethora of experts gracing the airways and stock market blogs everywhere, the stock market is "supposed" to be going to heck in a hand basket right about now. As such, there are probably an awful lot of frustrated bears.

    Perhaps even more frustrating to those seeing the stock market's glass as at least half-empty is the fact that some of the bear arguments actually have some merit. This bull market IS getting old. There ARE a number of technical divergences and warning signs right now. China IS slowing down. And the economic outlook isn't exactly rosy.

    But many investors fail to understand the fact that worries alone don't cause bull markets to die. No, it usually takes some sort of catalyst or trigger to get a feeding frenzy to the downside started. And try as they might, the bears simply haven't been able to find that raison d'être for their cause.

    It Just Keeps Going and Going and...

    It is also important to note that bull markets tend to go farther and last longer than logic would seem to dictate. Remember, money makes the world go 'round. And when times are good in the market, the public tends to jump onboard and continue to allocate more and more of their 401K plan contributions to stocks each month. So as long as there is money pouring into equity funds, then those fund managers will continue to spend it on stocks.

    And then there is the fact that investors are very good at "fighting the last war." It is safe to say that just about everybody in the game is now ready for the next brutal bear market. "We won't get fooled again!" is the battle cry. And this is why there are so many so-called experts out their looking for the next bubble and the next crisis that will undoubtedly shake the market to its core.

    Everybody's Looking For the Same Thing

    The problem is that over the last 35 years, there have been exactly two devastating bear markets. First there was the Tech Bubble Bear of 2000. And then there was the Credit Crisis of 2008. That's it.

    The point is that really big, really bad bear markets just don't happen very often. Yet, everybody under the sun is busy waiting for the next bear to commence. But the bottom line is that those big, bad bears just don't show up when everyone is looking for them.

    Where We Are Now?

    So, where does this leave us? For starters, there is a very good chance that a secular bull market began on March 9, 2009. And given that secular bulls tend to last 10 or 15 years (the last one began in 1982 and ended in 2000), all those bears looking to capitalize on the next big market calamity may be disappointed for some time yet.

    This is not to say however, that the market won't experience a cyclical or "mini" bear at some point. Such declines tend to occur with some regularity and generally produce declines in the -10 to -15 percent range. And based on some of the action taking place in the market, we could very easily see one of these "mini" bears begin in the not too distant future.

    So, tomorrow, we will look at the evidence that would support a "baby bear" sometime this year.

    Looking For Investment Management Help?

    If you are looking for help with money management, check out Heritage Capital Management's Active Risk Manager Service - or call Heritage for more information at (630) 250-4700.

    ALL NEW: The Next Generation of the Daily Decision system is now available to clients of Heritage Capital. The upgraded system utilizes swing trading and mean reversion strategies during neutral market environments, multiple indices for long positions, incremental moves in and out of the market, multiple managers and multiple strategies - with the overall goal being reduced volatility, fewer and less impactful whipsaws, and a "smoother ride." To learn more about the "Next Generation" system, Read the Research Report

    Turning to This Morning...

    With Russia not immediately responding to the weekend secession vote by regions in Ukraine, it appears that traders have shifted their focus to the data. Today, we will get retail sales numbers here in the U.S. Traders will be looking to see if the report support the thesis that the polar vortex-induced soft patch in economy has ended. Asian markets were mostly higher overnight while European bourses are fractionally so. U.S. futures are pointing slightly higher in the early going.

    Pre-Game Indicators

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

    Major Foreign Markets:
    - Japan: +1.95%
    - Hong Kong: +0.41%
    - Shanghai: -0.09%
    - London: +0.09%
    - Germany: +0.59%
    - France: +0.16%
    - Italy: -0.67%
    - Spain: +0.02%

    Crude Oil Futures: +$0.57 to $101.16

    Gold: -$5.10 at $1290.70

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

    10-Year Bond Yield: Currently trading at 2.657%

    Stock Futures Ahead of Open in U.S. (relative to fair value):
    - S&P 500: +4.05
    - Dow Jones Industrial Average: +42
    - NASDAQ Composite: +9.42

    Thought For The Day...

    "Climb the mountain so you can see the world, not so the world can see you."

    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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