On one hand, it would be easy to argue that stocks are currently consolidating the gains from October's joyride to the upside. The S&P 500 is back to within spitting distance (i.e. 2%) of its all-time high and after a spirited move to the upside, a "pause that refreshes" would seem to be the order of the day.

On the other hand, it sure doesn't look or feel like the bulls have much of a shot at breaking on through to the other side any time soon. Every time you turn around, there is some new event, threat, or worry that puts sellers back in business for a week or two.

As such, it would appear that the up-one-minute and down-the-next market is back with us. A market where trends are measured in days or hours and all you have to do to look like a guru is to "go the other way" every few days or so.

But then again, what else is new? With the exception of the mid-August swoon and the ensuing recovery, investors have been dealing with tight trading ranges for the vast majority of the past year. If you will recall, the range that occurred between last November and July turned out to be one of the tightest in history. According to Ned Davis Research, that type of tight, 9-month range has only occurred 3% of the time since 1900.

S&P 500 - Daily

View Larger Image

So, should yesterday's action really surprise anyone? After all, the early move made sense as stocks opened lower on word that Turkey had shot down a Russian fighter jet over its airspace (which, according to one analyst, is what is supposed to happen in a true no-fly zone). The key was the term "geopolitical tensions" was back and traders reacted.

What you probably didn't know is that an ECB governor had already put Europe on the defensive by stating that he wasn't so sure more QE was needed. This after just about everybody on the planet has concluded that Super Mario and friends will soon announce an extension/expansion to its money printing program (oops, I mean "quantitative easing" strategy).

But a strange thing happened on the way to the big, bad decline that was supposed to be sponsored by geopolitical events - stocks turned around and rallied. No, the move wasn't dramatic or even noteworthy in the big picture. But a day that started off looking dismal soon began to feel more like any other quiet pre-Thanksgiving session in which the indices have a tendency to inch higher.

What Gives?

So, why the turnaround in stocks, you ask? Was there a breakthrough on the diplomatic front? Did Putin agree to "chillax" about the whole thing? Not exactly. No, as idiotic as it may sound, stocks moved up again because oil moved higher.

Yep, that's right. Once again, oil rallied a bit in response to a "geopolitical event." Not a lot, mind you - a move of 2.3% barely shows up on the chart (see below). But once again, the U.S. stock market followed suit. Seriously.

US Oil Fund (NYSE: USO) - Daily

View Larger Image

If oil was moving up due to improved economic conditions or a supply issue, this would make sense and I would be championing the oil/stocks correlation trade. But for stocks to move up because oil didn't break to fresh new low, well, that is a head-scratcher.

To be sure, Ms. Market's game doesn't always make a lot of sense. And this is especially true when stocks are overbought and bumping into resistance. So, I guess the good news is that stocks weren't able to find a reason to decline when the news looked bad in the early going yesterday. And as the saying goes, a market that doesn't go down on bad news...

Finally, it is my sincere hope that you all have a wonderful Thanksgiving holiday. With the stock market only open for half a day on Friday and my family coming into town, I'll be taking Friday morning off and focusing on "the important stuff."

Today's Pre-Game Indicators

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

Major Foreign Markets:
Japan: -0.39%
Hong Kong: -0.40%
Shanghai: +0.88%
London: +0.95%
Germany: +1.57%
France: +1.38%
Italy: +1.29%
Spain: -0.65%

Crude Oil Futures: -$0.68 to $42.20

Gold: +$0.20 at $1074.00

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

10-Year Bond Yield: Currently trading at 2.232%

Stock Indices in U.S. (relative to fair value):
S&P 500: +3.60
Dow Jones Industrial Average: +33
NASDAQ Composite: +9.75

Thought For The Day:

"It isn't the size of the man in the fight; it is the size of the fight in the man." --Bob Fitzsimmons

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 Positive
(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): Positive
• Price Thrust Indicator: Positive
• Volume Thrust Indicator(NASDAQ): Negative
• Breadth Thrust Indicator (NASDAQ): Neutral
• Short-Term Volume Relationship: Neutral
• Technical Health of 100+ Industry Groups: Low 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: Moderately Overbought
  - Intermediate-Term: Overbought
  
• 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.