If it's Friday then there must be new developments in the Russia/Ukraine situation for traders to worry about. Sure enough, this morning there is word that Russia has ordered a convoy of between 70 and 90 aid trucks to cross over the border into eastern Ukraine without approval from Ukrainian officials or the Red Cross. According to reports, Kiev said the move represents a "direct invasion" of Ukraine by Russia.

"They passed into Ukraine without clearance or participation of the International Red Cross or (Ukrainian) border guards," said a military spokesman. And then the head of Ukraine's state security added, "We consider this a direct invasion by Russia of Ukraine." Super.

As has been the trend lately, European stocks have tumbled on news of the escalation of the situation in Ukraine. Recall that early in the week stocks had rallied on word that EU officials had made progress in negotiations for a peaceful resolution of the conflict. But as of Friday, the song out of Russia/Ukraine appears to remain the same.

The Main Event

However, the situation in Ukraine is secondary to today's main event, which is Janet Yellen's speech at the Fed's annual symposium in Jackson Hole, WY. Ms. Yellen's speech has been highly anticipated and she is slated to speak at 10:00 am eastern time. Most analysts expect Yellen to confirm her uber-dovish stance toward monetary policy and provide no hints that rates could be raised sooner than anticipated.

Yellen's speech, entitled, "Re-Evaluating Labor Market Dynamics" is expected to reiterate her views that significant slack remains in the labor markets and that rates need to stay low in order to help the job market heal.

However, there has been a great deal of Fed-speak lately referencing the fact that both the economy and the job market are rapidly approaching the Fed's stated targets. This has led Fed officials to suggest that the Fed should remain data-dependent and be prepared to raise rates before June 2015, which is the general consensus for when the FOMC will first increase the target for the Fed Funds rate.

The bottom line is the market will likely move today in accordance with Janet Yellen's comments. If the Fed Chair talks about raising rates sooner rather than later, rest assured that sell algos will be launched. However, if Yellen remains Yellen and sticks with her usually dovish view, then yesterday's breakout could be extended. So... stay tuned, this could get interesting.

Looking At The Charts

The big news in the market from a technical standpoint is the fact that the S&P 500, NASDAQ, and NASDAQ 100 indices all broke to fresh all-time highs on Thursday. However, as the bears are quick to point out, the move was less than convincing as there was little in the way of "oomph" behind the break to new highs and less-than robust confirmation from the other major indices (DJIA, Midcaps and Smallcaps). As such, our furry friends in the bear camp are promoting the idea that this time won't be different and that the indices will quickly succumb to yet another "breakout fake out," which has occurred with some regularity this year. And given that the recent joyride to the upside is looking more than a little extended at the present time, a pullback is to be expected.

S&P 500 - Daily

Pre-Game Indicators

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

Major Foreign Markets:
    - Japan: -0.30%
    - Hong Kong: +0.47%
    - Shanghai: +0.47%
    - London: -0.04%
    - Germany: -0.42%
    - France: -0.81%
    - Italy: -0.31%
    - Spain: -0.44%

Crude Oil Futures: -$0.36 to $93.60

Gold: +$4.70 at $1280.10

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

10-Year Bond Yield: Currently trading at 2.393%

Stock Indices in U.S. (relative to fair value):
- S&P 500: -3.42
- Dow Jones Industrial Average: -17
- NASDAQ Composite: -4.28

Thought For The Day:

As you walk down the fairway of life you must smell the roses, for you only get to play one round -Ben Hogan

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 the Geopolitical 'Issues'
      2. The State of Fed/ECB Policy
      3. The Level of Interest Rates
      4. The Outlook for U.S. Economic 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 3 months, and long-term as 3 months or more. Below are our current ratings of the three primary trends:

Short-Term Trend: 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:

• Key Near-Term Support Zone(s) for S&P 500: 1960(ish)
• Key Near-Term Resistance Zone(s): 1995

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
Signal 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: Positive
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: Positive
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: Positive
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: Moderately Positive
Indicator 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: Neutral
Model 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.

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: Overbought
        - Intermediate-Term: Neutral
  
• Market Sentiment: Our primary sentiment model is Positive .

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 State of the Market Model Reading: Positive
Model 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.

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

David D. Moenning
Founder and Chief Investment Strategist
Heritage Capital Research - A CONCERT Advisor
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