From a long-term perspective, it is worth noting that the current advance in the S&P 500 is now the 2nd longest period in history without a 10% correction and the 3rd longest (but only by a hair) without a 20% correction (aka a bear market). Thus, it is easy to say that this bull market is getting long in the tooth. However, before you run out and sell everything, it is important to remember that bull markets don't die of old age. No, usually, the bears come to call in response to economic recessions, an inflationary environment, the Fed getting aggressive, and/or an external event such as the Gulf Wars.

So, when looking at the market from a longer-term perspective, it is probably a good idea to pay attention to the big-picture drivers. Running down the list of the market fundamentals, we find that interest rates remain low from an historical perspective, the economy seems to be emerging from yet another weather-induced soft patch (our economic models remain moderately positive at this time) and there is no serious threat of inflation. On the other side of the ledger, we see that earnings are struggling a bit and the technical health of the market’s industry groups remains moderately positive (but only moderately so).

In short, this quick-and-dirty rundown on the bigger picture state of the market would seem to suggest that the edge continues to favor the bulls and that longer-term investors should continue to lean to the long side.

So, what would it take to turn our moderately positive stance more cautious from a big-picture perspective? This list includes a significant backup in rates (think of the 10-year over 2.5%), the threat of lasting inflation, the Fed becoming aggressive (and no, returning rates to more normal levels doesn't count), the economy heading toward recession, and/or meaningful technical divergences. But for now, since there are no check marks to be made on this list, a buy-the-dip approach appears to be warranted.

Technical Talk

With the S&P 500 sitting just about smack dab in the middle of the current Donchian Channel bands, it can be argued that the market is waiting on some important news. But with the jobs report out of the way and nobody paying much attention to Greece these days, the question, of course, is what exactly are traders waiting on?

To a pure market technician, both the question and the answer are moot as this camp contends that "the tape tells all." So, from a pure price perspective, things couldn't be more neutral and the game continues to center around a break of the important support and/or resistance zones.

Speaking of support, we should note that there are three important zones of support between 2040 and 2070. But for us, the key level of support continues to be 2040 as a meaningful break below this point would undoubtedly bring in significant technical selling.

S&P 500 Index - Daily

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Turning To This Morning...

The flip-flop market will keep on keepin' on this morning as suddenly fears about the recent spike in rates are on the back burner. To be sure, interest rates are the focus at the present time. The key question is whether or not the rise in rates will be sustained over time or is just a typical counter-trend move. This morning, the WSJ is out with an article suggesting that the explanations for the selloff in bond prices have been unconvincing. The article noted that expectations for the Eurozone economy to improve in any meaningful fashion appear to be misplaced. However, there is talk that the the higher yields in the U.S. are also a reflection of what is being called the "stagflation trade" where slower growth and higher inflation expectations are the driver.

Overnight in Asia, expectations continue to build regarding additional monetary policy support for the economy. European markets have reversed earlier losses and are now modestly higher. And in the U.S., futures point to a stronger open on Wall Street.

Pre-Game Indicators

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

Major Foreign Markets:
    Japan: -0.99%
    Hong Kong: +0.14%
    Shanghai: +0.05%
    London: -0.04%
    Germany: +0.30%
    France: +0.28%
    Italy: +0.57%
    Spain: +0.34%

Crude Oil Futures: +$0.01 to $60.51

Gold: +$0.30 at $1218.50

Dollar: lower against the yen, euro and pound

10-Year Bond Yield: Currently trading at 2.272%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +12.92
    Dow Jones Industrial Average: +111
    NASDAQ Composite: +32.39

Thought For The Day:

"The true measure of a person is how they treat someone who can do him absolutely no good." - Samuel Johnson

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 Interest Rates
      2. The State of Fed/ECB/PBoC Policy
      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: Neutral
(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: 2080
• 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): Neutral
• Price Thrust Indicator: Negative
• Volume Thrust Indicator: Negative
• Breadth Thrust Indicator: Neutral
• Intermediate-Term Bull/Bear Volume Relationship: Moderately 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: Neutral
        - Intermediate-Term: Moderately Overbought
  
• 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: Moderately 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.