Perhaps the best word used to describe the current market environment is resilient. Regardless of what the bears throw up against the wall lately, nothing seems to stick. Once again, traders appear to have shaken off the most recent geopolitical issues in both Russia/Ukraine and Gaza, and instead are focused on the state of the earnings season. In short, earnings are coming in above expectations and it is encouraging to see more companies beating revenue estimates than normal this quarter. However, our overall market environment models remain neutral across the board this morning.
The question of the day is if the bulls will be able to break on through to the other side of the tight, sideways trading range that has been in place since the end of June - or - will the bears be able to hold their ground and produce what my friend and colleague Jeff Pietsch (President of CONCERT Capital Management in San Jose, CA) has termed a "range reject." In looking for clues to the answer, we note that the NDX (NASDAQ 100 Index) has been stepping lively of late and stands at its highest level since early 2000. However, the bears are quick to point out that NONE of the major indices (S&P 500, DJIA, NASDAQ Comp., Russell 2000 or S&P 400 Midcap) have confirmed this move. As such, the divergences remain in place and the technical picture remains cloudy.
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Here are the Pre-Market indicators we review each morning before the opening bell...
Major Foreign Markets:
- Japan: -0.09%
- Hong Kong: +0.80%
- Shanghai: +0.12%
- London: +0.07%
- Germany: +0.33%
- France: +0.49%
- Italy: +0.34%
- Spain: +0.40%
Crude Oil Futures: +$0.09 to $104.28
Gold: +$0.40 at $1306.70
Dollar: lower against the yen and pound, higher vs. euro.
10-Year Bond Yield: Currently trading at 2.453%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +1.50
- Dow Jones Industrial Average: +1
- NASDAQ Composite: +10.08
We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).
1. The State of the Geopolitical 'Issues'
2. The State of Fed/ECB Policy
3. The State of the Earnings Season
4. The Outlook for U.S. Economic Growth
We believe it is important to analyze the market using multiple time-frames. We define short-term as 3 days to 3 weeks, intermediate-term as 3 weeks to 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:
Short-Term Trend: Moderately Positive
(Chart below is S&P 500 daily over past 1 month)
Intermediate-Term Trend: Positive
(Chart below is S&P 500 daily over past 6 months)
Long-Term Trend: Positive
(Chart below is S&P 500 daily over past 12 months)
Key Technical Areas:
Traders as well as computerized algorithms are generally keenly aware of the important technical levels on the charts from a short-term basis. Below are the levels we deem important to watch today:
Momentum indicators are designed to tell us about the technical health of a trend - I.E. if there is any "oomph" behind the move. Below are a handful of our favorite indicators relating to the market's "mo"...
Markets travel in cycles. Thus we must constantly be on the lookout for changes in the direction of the trend. Looking at market sentiment and the overbought/sold conditions can provide "early warning signs" that a trend change may be near.
One of the keys to long-term success in the stock market is stay in tune with the market's "big picture" environment in terms of risk versus reward because different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Market Model. This model is designed to tell us when risk factors are high, low, or uncertain. In short, this longer-term oriented, weekly model tells us whether the odds favor the bulls, bears, or neither team.
Weekly State of the Market Model Reading: Moderately Positive
The secret of success is to be ready when your opportunity comes. - Benjamin Disraeli
Wishing you green screens and all the best for a great day,
David D. Moenning
Founder, StateoftheMarkets.com
President, Chief Investment Officer Heritage Capital
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