The easiest thing to say this morning is that yesterday's action represented a case of "same song, different day" as the move up in prices really had little to no impact on the overall picture. The bottom line continues to be that there is still a fair amount of uncertainty in this market and it is this uncertainty that is keeping prices moving up one day and then down the next in response to each incremental input.

However, with prices near the top end of the range and the NASDAQ once again threatening to take out its 15-year old high water mark, one can argue that some of the uncertainty/fear over the state of the earnings season, the economic data, and what the Fed is going to next may be receding. But then again, every time the indices have approached new highs in the last 9 months, something has come out of the woodwork to initiate a pullback. As such, it might be a bit naive to hold out much hope for the bulls to break on through to the other side in any meaningful fashion right now.

On the earnings front, it is now quite clear that the revenues of the big, multinational companies have been hit hard by the rally in the dollar. According to FactSet, the biggest theme in the first couple of weeks of this earnings season is that the impact from FX has been even greater than had been expected. For example, with more than a quarter of S&P 500 companies having now reported results, only 46% have beaten consensus revenue estimates. This is below the 60% one-year average and the five-year average of 58%. And the blended growth rate for Q1 revenue now stands at -3.3%.

As far as the uncertainty over the Fed is concerned, the good news is that the general consensus now sees little to no chance of the FOMC raising rates at their June meeting. And while some Fed Governors continue to suggest that such a move is still technically on the table, most analysts are now looking at September as the date when the "liftoff" to rate normalization could begin. But be sure to stay tuned as this topic is subject to change on a daily basis.

In sum, while the current drivers of the market are fairly easy to identify, the picture remains muddy, which, in turn, is reflected in the current choppy, sideways price action.

Time permitting, tomorrow's missive will explore the best ways to play this bucking bronco market.

Technical Take

With the major indices now perched at the high end of the recent trading range - a range that has now been with us for almost two months - the cynics among us are suggesting that traders will undoubtedly find a reason to "go the other way" in the very near-term. Such a move would mark the fifth trip through the range and cause trend-followers to likely throw up their hands in disgust. Given that stocks are now overbought from a short-term perspective, sentiment indicators are starting to creep into the danger zone, and the economic data out of China and Europe today was disappointing, we probably shouldn't be terribly surprised if it is indeed time to go the other way for a while.

S&P 500 Index - Daily

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Turning To This Morning...

The flood of earnings continues unabated this week with the batch from Wednesday evening providing a mixed bag of results. In other news, China's flash manufacturing PMI disappointed again as the index hit a one-year low. As expected, the data produced almost instantaneous calls for additional stimulative measures from leadership and talk of additional cuts in the RRR are swirling. In Europe, the headlines surrounding Greece are improving a bit, but the market doesn't seem to be paying much attention at this time. However, the flash PMI's from the Eurozone were also on the disappointing side, which is pushing bourses across the pond lower. In addition, there are reports of new Saudi air strikes in Yemen, which does not seem to be impacting oil to any great degree in the early going. And finally, stock futures in the U.S. are following Europe lower and point to a modest decline at the open. However, which way the algos decide to take the market after the opening minutes remains a mystery.

Pre-Game Indicators

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

Major Foreign Markets:
    Japan: +0.27%
    Hong Kong: -0.38%
    Shanghai: +0.38%
    London: -0.05%
    Germany: -1.32%
    France: -0.96%
    Italy: -0.88%
    Spain: -0.59%

Crude Oil Futures: +$0.25 to $56.41

Gold: +$3.20 at $1190.10

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

10-Year Bond Yield: Currently trading at 1.964%

Stock Indices in U.S. (relative to fair value):
    S&P 500: -6.76
    Dow Jones Industrial Average: -64
    NASDAQ Composite: -17.06

Thought For The Day:

Enjoy the little things, for one day you may look back and realize they were the big things. - Robert Brault

Current Market Drivers

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 Fed/ECB Policy
      2. The State of the Earnings Season
      3. The State of the U.S. Economy
      4. The State of the U.S. Dollar

The State of the Trend

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: Moderately 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 2 years)

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:

• Key Near-Term Support Zone(s) for S&P 500: 2040
• Key Near-Term Resistance Zone(s): 2120

The State of the Tape

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"...

• Trend and Breadth Confirmation Indicator (Short-Term): Positive
• Price Thrust Indicator: Positive
• Volume Thrust Indicator: Neutral
• Breadth Thrust Indicator: Neutral
• Bull/Bear Volume Relationship: Positive
• Technical Health of 100+ Industry Groups: Moderately Positive

The Early Warning Indicators

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.

• S&P 500 Overbought/Oversold Conditions:
        - Short-Term: Moderately Overbought
        - Intermediate-Term: Neutral
  
• Market Sentiment: Our primary sentiment model is Neutral .

The State of the Market Environment

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.

• Weekly Market Environment Model Reading: Positive

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder and Chief Investment Strategist
Heritage Capital Research

Indicator Explanations

Trend and Breadth Confirmation Indicator (Short-Term) Explained: History shows the most reliable market moves tend to occur when the breadth indices are in gear with the major market averages. When the breadth measures diverge, investors should take note that a trend reversal may be at hand. This indicator incorporates an All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 5-day smoothing and the All-Cap Equal Weighted Equity Series is above its 25-day smoothing, the equity index has gained at a rate of +32.5% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +13.3% per year. And when both are below, the equity index has lost +23.6% per year.

Price Thrust Indicator Explained: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average. When the Value Line's 3-day rate of change have moved above 0.5 standard deviation of the 30-day average ROC, a "thrust" occurs and since 2000, the Value Line Composite has gained ground at a rate of +20.6% per year. When the indicator is below 0.5 standard deviation of the 30-day, the Value Line has lost ground at a rate of -10.0% per year. And when neutral, the Value Line has gained at a rate of +5.9% per year.

Volume Thrust Indicator Explained: This indicator uses NASDAQ volume data to indicate bullish and bearish conditions for the NASDAQ Composite Index. The indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume (i.e., the total volume traded in stocks which rose in price each day) to the 10-day total of daily declining volume (volume traded in stocks which fell each day). This ratio indicates when advancing stocks are attracting the majority of the volume (readings above 1.0) and when declining stocks are seeing the heaviest trading (readings below 1.0). This indicator thus supports the case that a rising market supported by heavier volume in the advancing issues tends to be the most bullish condition, while a declining market with downside volume dominating confirms bearish conditions. When in a positive mode, the NASDAQ Composite has gained at a rate of +38.3% per year, When neutral, the NASDAQ has gained at a rate of +13.3% per year. And when negative, the NASDAQ has lost at a rate of -8.5% per year.

Breadth Thrust Indicator Explained: This indicator uses the number of NASDAQ-listed stocks advancing and declining to indicate bullish or bearish breadth conditions for the NASDAQ Composite. The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ each day to the 10-day total of the number of stocks declining each day. Using 10-day totals smooths the random daily fluctuations and gives indications on an intermediate-term basis. As expected, the NASDAQ Composite performs much better when the 10-day A/D ratio is high (strong breadth) and worse when the indicator is in its lower mode (weak breadth). The most bullish conditions for the NASDAQ when the 10-day A/D indicator is not only high, but has recently posted an extreme high reading and thus indicated a thrust of upside momentum. Bearish conditions are confirmed when the indicator is low and has recently signaled a downside breadth thrust. In positive mode, the NASDAQ has gained at a rate of +22.1% per year since 1981. In a neutral mode, the NASDAQ has gained at a rate of +14.5% per year. And when in a negative mode, the NASDAQ has lost at a rate of -6.4% per year.

Bull/Bear Volume Relationship Explained: This indicator plots both "supply" and "demand" volume lines. When the Demand Volume line is above the Supply Volume line, the indicator is bullish. From 1981, the stock market has gained at an average annual rate of +11.7% per year when in a bullish mode. When the Demand Volume line is below the Supply Volume line, the indicator is bearish. When the indicator has been bearish, the market has lost ground at a rate of -6.1% per year.

Technical Health of 100 Industry Groups Explained: Designed to provide a reading on the technical health of the overall market, this indicator takes the technical temperature of more than 100 industry sectors each week. Looking back to early 1980, when the model is rated as "positive," the S&P has averaged returns in excess of 23% per year. When the model carries a "neutral" reading, the S&P has returned over 11% per year. But when the model is rated "negative," stocks fall by more than -13% a year on average.

Weekly State of the Market Model Reading Explained: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.

Disclosures

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 is for informational purposes only. No part of the material presented in this report 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.

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.

David D. Moenning, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., a registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.

Employees and affiliates of Heritage and HCM 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 Heritage/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.