I'd like to start this morning by once again asking, are we having fun yet? In looking back at my 28+ years of being responsible for other people's money in the markets, I am not sure I can recall a time that has been so consistently difficult to manage.

Well, to be fair, there have been LOTS of difficult times in the markets. The months leading up to the Crash of '87 (when I was still drawing trendlines on daily charts printed in the WSJ with a ruler and pencil), the first Gulf War in 1990, the mess in 1994, the LTCM crisis in 1998, the insanity of 1999, 9/11, the tactical travails of 2005-06, the Credit Crisis, the first Flash Crash, and finally, there was Greece (and Europe) - I.E. the crisis that just kept on giving... and giving... and giving.

But what makes this market particularly tough is the length of time that stocks have basically done nothing - and yet they've done so in a very violent fashion. What the casual observer may not realize is that the "nothing" seen on the long-term charts doesn't tell the entire story of this market.

S&P 500 - Weekly

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No, in between all those trips through the various trading ranges was a whole bunch of daily volatility, making it tough for investors to keep their bearings.

So, with the understanding that this has not been an easy sea to navigate, I'd like to offer up a couple things to ponder as we head into the weekend - and the heart of the Holiday Season.

And We're Back...

Well, that didn't take long. One day after the Fed hiked rates for the first time in nine years, the market was back to following around the price of oil like a little puppy dog. Asia was up overnight. Europe was up big. And our futures were following suit. Well, until the price of oil started to break down again, that is.

S&P 500 - Daily

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One day after some folks had begun to feel like an actual trend might be developing, the bears returned and smoked the Dow for a loss of 253 points, wiping out about half the gain seen from the prior three-day rally.

And one day after it looked like the traditional Santa Claus rally was about to get started in earnest, is became clear that stocks remain stuck in an up-one-day, down-the-next, sideways trading range. Joy.

What About Santa Claus???

Speaking of Santa, let's not forget that we are quickly approaching what is usually a positive time of year for stocks. According to the Stock Traders Almanac, the last five trading days of the year and the first two trading days of the New Year tend to be kind to investors -- the average gain for the S&P 500 during this time is +1.4%.

But what most folks don't know about the so-called "Santa Claus Rally" is the significance of when it doesn't happen. Yale Hirsch's now famous words sum it up rather nicely: "If Santa Claus should fail to call, bears may come to Broad and Wall."

So, while the bulls do have the seasonal tailwinds at their backs at this time of year, a further decline in oil price may become the Grinch that stole the Santa Rally this year.

Turning to This Morning

It appears that yesterday's selling in the U.S. has spilled over into the global markets overnight. Adding insult to injury is the fact that crude is making fresh 11-year lows this morning, Japan surprised the markets by announcing some additional QE buying in ETFs, and the news that Ukraine has defaulted on its debt. On the oil front, a prominent, London-based energy trader says that prices are likely to fall farther and his fund is looking for $25 by the end of Q1 2016. In response, European bourses and U.S. futures are tumbling as traders prepare what is expected to be a very large options expiration event.

Today's Pre-Game Indicators

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

Major Foreign Markets:
Japan: -1.89%
Hong Kong: -0.53%
Shanghai: -0.03%
London: -0.65%
Germany: -1.17%
France: -1.34%
Italy: -1.26%
Spain: -1.72%

Crude Oil Futures: -$0.51 to $34.51

Gold: +$5.90 at $1055.50

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

10-Year Bond Yield: Currently trading at 2.209%

Stock Indices in U.S. (relative to fair value):
S&P 500: -18.54
Dow Jones Industrial Average: -143
NASDAQ Composite: -29.79

Thought For The Day:

"The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." -- Sir John Templeton

Here's wishing you green screens and all the best for a great day,

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

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 Global Central Bank Policy
2. The State of the Oil/Junk Bond Dive
3. The State of Global Growth

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 6 months, and long-term as 6 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: Neutral
(Chart below is S&P 500 daily over past 6 months)

Long-Term Trend: Moderately 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: 2020
• Key Near-Term Resistance Zone(s): 2135

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): Negative
• Price Thrust Indicator: Negative
• Volume Thrust Indicator(NASDAQ): Negative
• Breadth Thrust Indicator (NASDAQ): Negative
• Short-Term Volume Relationship: Negative
• Technical Health of 100+ Industry Groups: Moderately Negative

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 Oversold
  
• Market Sentiment: Our primary sentiment model is Negative

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: Negative

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 is the owner of Heritage Capital Management (HCM) a registered investment adviser. Advisory services are offered through Heritage Capital Management, Inc. For a complete description of investment risks, fees and services review the HCM firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting HeritageHCM also serves as a sub-advisor to other investment advisory firms. Neither HCM or Heritage 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.