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Dave & Donald Moenning

Mr. David Moenning is a full-time professional money manager and is the President and Chief Investment Officer for his Chicago-based Registered Investment Advisory firm, Heritage Capital Management (...

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Remember, Do Nothing, Absolutely Nothing Until...

In case the action over the past few days hasn't made it clear, traders appear to be implementing an age-old Wall Street-ism right now...

"Do nothing, absolutely nothing until there is something to do."

Put another way, it looks like most investors have decided to sit on their hands until the storm brewing in Washington passes.

This means that the algorithms are large and in charge at the present time. Stock indices are now moving violently each and every time a politician says something, regardless of whether or not the comment made was meaningful. So, raise your hand if you too are growing tired of the stock market lurching in either direction to the tune of 0.5 percent every time a computer runs a series of programs.

Given that there haven't been any real developments in the debt debate, the current spastic intraday moves are likely to stick around a while. As such, the remainder of this morning's missive will focus on investing strategy. What follows may be simplistic, but most investors can benefit from a big-picture strategy session every once in a while.

As Peter Lynch Said, Invest in What You Know

It is a safe bet that most investors focus a fair amount of their investment portfolios on the U.S. stock market. Since stocks have been the best performing asset class over time, this certainly makes sense. It also follows that investors prefer to invest in what they know and where they feel comfortable. So again, investing in the U.S. seems to fit the bill here.

Since the turn of the century however, investors have discovered that investing in the U.S. stock market also entails a little thing called risk. Two devastating bear markets, both of which produced losses in excess of 50 percent, within a nine year period has forced both individual and professional investors alike to reconsider the concept of risk. Every investor now knows that risk happens fast in the stock market and that it can be very, very painful.

So, the key question is how do investors capture the benefits of the stock market and yet avoid the mind-numbing declines that tend to occur during bear markets?

If memory serves, since 1900, the average bull market has produced gains of more than 80 percent while the average bear market has sported losses about 31 percent. And if you spend some time with a calculator, this combination can actually work to an investor's advantage over the long-term.

The Problem Is...

No offense intended, but the fact of the matter is the vast majority of individuals who invest in the stock market don't really know what they are doing. They don't understand the secular and cyclical trends. They don't know that most moves are overdone. They don't recognize what actually drives the market. They don't get the idea that the market is a discounting mechanism. They are confused when a company reports good earnings and the stock goes down. And they don't know how to recognize risk levels in the market.

Thus, too many investors wind up reacting to their emotions by buying when things "feel safe" and then selling when the pain of loss becomes unbearable. This means that investors basically implement a strategy of buying high and selling low. And the bottom line is this math just doesn't work very well.

A Three Step Plan

In an environment where markets move fast - in both directions - investors need to have a plan, a strategy, or a discipline to guide them. In addition, investors need to be able to stick with their plan/strategy when times get tough. And if the first part of that equation isn't hard enough, the second part (the sticking to it) can prove challenging - especially if you don't really understand your plan.

So... step one is to decide on a plan of attack. Frankly, it doesn't matter whether the plan is to dollar-cost average (buy each and every month) for the next twenty years or if you are going to use a sophisticated long/short trading strategy to try and make money in all environments. Again, the key is to have a plan.

Step two is to understand the plan. This means knowing the positives and negatives of the plan. It also means understanding when/how your particular strategy can struggle (don't kid yourself, ALL investing strategies struggle from time to time and/or in certain environments). In all honesty, this is not an easy task. But the point is to take the time to get to know how your approach is expected to work in various market environments.

And then step three is to implement a plan on a consistent basis. In short, this means that you don't get to pick and choose when to follow your strategy. No, you've got to commit. And yes, this means to continue to implement your plan even when it isn't working very well. That's what disciplined investors do. And this is also why disciplined investors can succeed in the long run.

Finally, if you don't feel qualified to pick a plan or you don't know the ins and outs of a plan that you've chosen, consult an expert.

Click Here For More "Daily State of the Markets" Commentary

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. Fun and Games in Washington (I.E. the Debt Ceiling)

      2. The State of Fed Policy

      3. The Outlook for the U.S./Global 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 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: 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:

  • Near-Term Support Zone(s) for S&P 500: 1680

  • Near-Term Resistance Zone(s): 1700

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: Neutral

  • Price Thrust Indicator: Moderately Positive

  • Volume Thrust Indicator:Neutral

  • Breadth Thrust Indicator:Neutral

  • 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.

  • Overbought/Oversold Condition: The S&P 500 is neutral from a short-term perspective and is neutral from an intermediate-term point of view.


  • 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 because different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Markets 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.

Weekly State of the Market Model Reading: neutral

If you are looking for a disciplined, rules-based system to help guide your market exposure, check out The Daily Decision System.

Turning To This Morning...

Concerns over the political games being played in Washington are hurting the markets again today in the early going. In case you are wondering why traders care so much about the situation in D.C., Bloomberg reports that a Government shutdown would hit GDP by as much as 1.4%. So, with the 10/1 deadline for a deal to avert a shutdown quickly approaching, it appears that traders may want to avoid possible headline risks over the weekend as futures are pointing to a lower 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: -0.26%

- Hong Kong: +0.35%

- Shanghai: +0.19%

- London: -0.80%

- Germany: -0.22%

- France: -0.14%

- Italy: -0.98%

- Spain: -0.58%


Crude Oil Futures:
-$0.44 to $102.59

Gold: +$11.10 to $1335.20

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

10-Year Bond Yield: Currently trading at 2.631%

Stock Futures Ahead of Open in U.S. (relative to fair value):

- S&P 500: -7.12

- Dow Jones Industrial Average: -42

- NASDAQ Composite: -11.64

Thought For The Day...

Do you think to say "thank you" for the good things that happen each day?

Looking for Guidance in the Markets?

The Daily Decision: If you want a disciplined approach to managing stock market risk on a daily basis - Check the "Daily Decision" System. Forget the fast money and the latest, greatest option trade. Investors first need is a strategy to keep them "in" the stock market during bull markets and on the sidelines (or short) during bear markets. The Daily Decision system was up 30.3% in 2012, is up more than 25% in 2013, and the system sports an average compound rate of return of more than 30% per year.

The Insiders Portfolio: If you are looking for a truly unique approach to stock picking - Check out The Insiders Portfolio. We buy what those who know their company's best are buying - but ONLY when they are buying heavily! P.S. The Insiders is up over 30% in 2013 and has nearly doubled the S&P 500 since 2009.

The IRA/401K Advisor: Stop ignoring your 401K! Our long-term oriented service designed for IRAs and 401Ks strives to keep accounts positioned on the right side of the markets. This is a service you really can't afford not to use.

The Top 5 Portfolio: We keep things simple here by focusing on our five favorite positions. This concentrated stock portfolio employs a rigorous custom stock selection approach to identify market leaders. Risk management strategies are built in to every position.

All StateoftheMarkets.com Premium Services include a 30-day money-back guarantee!

Got Research?

Remember, you can receive email alerts for more than 20 free research report alerts from StateoftheMarkets.com including:

  • State's Chart of the Day - Each day we highlight a top rated stock with a positive technical setup

  • The Risk Manager Report - Stay in tune with the market's risk/reward environment

  • The “10.0” Report - These are the REAL best-of-breed companies

  • The Insiders Report - See what the people who know their company's best are buying

  • ETF Leaders Report - Looking for the top performing ETF's? You've come to the right place.

  • The SOTM 100 Portfolio - The top rated stocks in each market sector

  • State's Market Models - Each week we quantify the "state of the market" with a series of models

  • The Focus List - Think of the focus list as your own private research department. We do all the work and highlight our top picks each trading day
  • Mission Statement

    At StateoftheMarkets.com, our goal is to provide everything you need to be a more successful investor: The must-read headlines, market commentary, market research, stock analysis, proprietary risk management models, and most importantly – actionable portfolios with live trade alerts.

    Finally, we are here to help - so don't hesitate to call with questions, comments, or ideas at 1-877-440-9464.

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

    David D. Moenning

    Founder and Chief Investment Strategist

    StateoftheMarkets.com

    For up to the minute updates on the market's driving forces, Follow Me on Twitter: @StateDave (Twitter is the new Ticker Tape)

    Positions in stocks mentioned: none


    The opinions and forecasts expressed are those of David Moenning, founder of StateoftheMarkets.com 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 and on our website is for informational purposes only. No part of the material presented in this report or on our websites 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. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    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.

    The information contained in our websites and publications is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge 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 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.

    Tags: Peter Lynch

    Posted in: Broad U.S. Equity ETFs Markets