Good morning. On a personal note, let me begin this morning's missive by saying that France is one of my favorite places on the planet. And while my wife and I are not "city people," Paris is always on our short list of vacation stops each year. As such, our hearts and prayers go out to people of France.

Turning to the markets, the question of the day is if the fear of slowing global growth trumps the additional QE and economic stimulus that is expected to come from the ECB, Japan, and China.

Cutting to the chase, this question has been the driver of the market action for much, if not all, of 2015. The trend has been clear as one minute traders are in a tizzy about the outlook for global growth. And the next, well, they are reminded that there continues to be a steady flow of freshly printed euros and yen looking for a home. And by now, every trader worth their salt knows that when the QE cash is flowing, they need to be buying the dips.

Thus, if one steps back and removes the emotion from the terrorist attack, the "retail wreck," the ongoing dive in oil and key industrial metals, and the worries over global growth, the plan forward would appear to be simple for the trader types - "buy the dips and sell the rips."

S&P 500 - Daily

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So, with prices currently trending lower, the key to the near-term action will be to try and determine when traders and their fancy computers are going to flip the switch and go the other way for a while.

I guess the bottom line here is that this market has been range-bound for an exceptionally long period of time and hasn't made any progress in over a year. But since the bears haven't been able to get anything going to the downside for more than a couple weeks at a time, we will conclude that the market continues to be in a consolidation phase.

What Does It Mean To Investors?

This back and forth, up and down market environment has certainly presented challenges to anyone attempting to be tactical in their approach to the markets. In fact, tactical managers across the board have been struggling mightily since the beginning of 2014.

However, it is critical to note that tactical management is merely one investing approach or methodology. Other methodologies include passive indexing, strategic allocation, factor-based equity selection, target date, risk parity, global macro, value investing, employing alternatives, etc. In other words, there are many ways to approach the game of investing.

The Problem...

The problem is that too many investors (individual and professionals alike) tend to focus on just one thing (i.e. one methodology, strategy, or manager). This is usually an emotional response to what has or hasn't worked most recently in an investor's/advisor's portfolio.

For example, after the brutal bear market of 2008, a great many financial advisors decided to embrace tactical strategies. And who could blame them? With traditional asset allocation approaches having been beaten to death twice in a nine-year span, adding strategies to client portfolios that could potentially preserve capital during bear markets certainly makes sense.

But, the key is the very same tactical strategies and managers that performed well in the bears of 2000-02 and 2008, had struggled prior to the technology bubble bursting and the credit crisis. Oh, and a great many of these manager/strategies have stunk up the joint since 2009.

In case you think I'm picking only on the tactical crowd, it is important to remember that other methodologies have struggled mightily at times. Remember 2012? At that time, a strategic allocation approach was referred to as "diworsification." Oh, and then there are the bear markets of 2000 and 2008 - how'd that passive approach feel then?

Unfortunately, what most investors don't seem to understand is that ALL methodologies, ALL strategies, and ALL managers struggle from time to time!

Yet a great many investors and a disturbing number of advisors tend to flee a struggling methodology/strategy/manager whenever it underperforms. They then begin the search for something better. I.E. something that would have worked well when their approach didn't.

In short, this is called "chasing the hot dot," "performance chasing," and/or "strategy hopping." And the bottom line is that buying high (i.e. moving into what has been working well recently) and selling low (moving out of what is underperforming) is not a recipe for success. Am I right?

When speaking to advisors, I use Warren Buffett as the poster child for my point. Most everyone will agree that Buffett and his sidekick Charlie Munger are probably the greatest investors of our generation. But, if one studies the performance of Berkshire Hathaway (NYSE: BRK.A) they will find that The Oracle of Omaha has indeed struggled and/or underperformed the market at times.

Anybody remember what Buffett said about the technology craze in the late 1990's? In short, he suggested that technology didn't make sense in his approach and that he was skipping the whole thing. At the time, the thinking was "the old bird had lost it" and that Buffett was done. But sure enough, Buffett turned out to be right and after underperforming for a while, BRK.A soon returned to form.

Don't look now fans, but Buffett is struggling in 2015. If my math is correct, BRK.A is sporting a loss of more than -12% year-to-date. Ouch.

Berkshire Hathaway (NYSE: BRK.A) - Monthly

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To make this point come alive, compare the long-term (monthly) chart of Berkshire Hathaway (NYSE: BRK.A) above to that of the S&P 500 below.

S&P 500 - Monthly

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My key points this morning are as follows:

• All strategies/managers/methodologies struggle/underperform from time to time
• Changing strategies/managers/methodologies during a period of underperformance doesn't work
• There is no manager/strategy/methodology that works in all environments

What's The Answer?

After 28 years of managing other people's money, it has become clear that there is no silver bullet in our business. There is no one best strategy, approach, manager, or methodology. No, as the saying goes, every dog has its day. In my experience, the best answer is to properly diversify your portfolio across methodologies (passive, strategic, tactical, equity selection, alts, etc.), strategies, and managers.

By the way, it is the "properly" part of the equation that gets tricky! Simply throwing together a bunch of managers and strategies doesn't cut it. In short, you've got to understand what drives the alpha of a strategy and then more importantly, what type of environment will cause the manager/strategy to underperform!

So, while it may sound strange coming from a manager who espouses a risk-managed approach to investing, I think we need to, as Justin Timberlake might say bring Buy-and-Hold Back!

No, I'm not saying investors should close their eyes and employ a passive approach (although passive indexing should be a portion of a portfolio!). I'm simply saying that investors should first properly diversify their portfolios using multiple methodologies, multiple strategies, multiple managers, and multiple time frames, and then "buy and hold their portfolio" -- for years at a time.

At my firm, we call this approach MPD™, which stands for Modern Portfolio Diversification™ -- and I am preaching this approach to anyone and everyone that is willing listen these days. After all, what good is 28 years of experience/mistakes if other folks can't benefit from them?

Have a great day and "Vive la France!"

Today's Pre-Game Indicators

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

Major Foreign Markets:
Japan: -1.04%
Hong Kong: -1.72%
Shanghai: +0.73%
London: +0.37%
Germany: +0.15%
France: -0.19%
Italy: -0.26%
Spain: -0.01%

Crude Oil Futures: +$0.95 to $41.69

Gold: +$10.70 at $1091.60

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

10-Year Bond Yield: Currently trading at 2.260%

Stock Indices in U.S. (relative to fair value):
S&P 500: +3.60
Dow Jones Industrial Average: +27
NASDAQ Composite: +5.50

Thought For The Day:

"Never ascribe to malice, that which can be explained by incompetence." --Napoleon

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 Growth
2. The State of Global Central Bank Policy
3. The State of the U.S. Economy

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: Moderately Negative
(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: ModeratelyPositive
• Technical Health of 100+ Industry Groups: Neutral

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: Oversold
  - Intermediate-Term: Neutral
  
• 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: Neutral

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.