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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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Is It Time To Worry? The Charts Say No

It's really getting ugly out there.

After Monday's 136 point decline on the DJIA, which just happened to be the eleventh losing session seen in the last thirteen for the venerable index, the popular press was ready to declare the corner Broad and Wall a disaster area.

Although the Dow is by far the worst performing index (the corrective phase has knocked off 740 points or 4.73 percent since the September 18 high) it appears that the media is attempting to dredge up the extreme emotions that surrounded the 2011 debt/budget fight.

Below is a list of headlines seen on Monday after the closing bell on sites such as MarketWatch and CNBC:

  • "Social Security now at risk if debt ceiling isn't raised"
  • "One month shutdown may trigger 20%-30% correction"
  • "Fear gauge jumps"
  • "S&P ends at 4 week low"
  • "Dow below 15,000"
  • "Debt ceiling flashback: Remember how bad 2011 was?"
  • "China warns US 'clock is ticking'"

To be fair, none of the headlines were overly inflammatory. None suggested that the sky is indeed falling this time around. And after actually reading the articles, it is safe to say that most were fairly accurate.

However, to the average investor, someone who doesn't look at the correlations of market indices, the internal indicators, or the important technical levels, those headlines could very easily create some angst.

And perhaps that is the point. More than a handful of politicians, including the President of the United States, has gone on record suggesting that there is too much complacency in the markets right now. The thinking is that if stocks were in panic mode, Congress might start to feel some heat.

But with the so-called deadline (and it does appear that term is used loosely these days) still more than nine days away and the stock market just hanging around, the concern is that the politicians still have plenty of time to push the envelope on their game of political brinkmanship.

Where Everyone Stands

Let's break it down.

The President cancelled a trip to Asia and called everyone to his office to announce that he was not going to negotiate this matter. The Tea Party Republicans are not going to do anything unless/until "ObamaCare" is repealed or defunded.

The Democrats believe they are #winning and thus have no reason to deviate from the current game plan. And the end result is that nothing, absolutely nothing, is happening.

Stocks/Bonds Not Worrying (Yet?)

Each day that the impasse continues creates more doubt that a deal won't get done. Each passing day causes traders to fear the worst. And each passing day causes just about everyone in the country to fret about the politicians doing the unthinkable: defaulting on U.S. Government debt.

While the press continues to sport emotional headlines on the subject intended to evoke a response (well, actually the goal is to get you to read the article and maybe click on an advertisement or two), the markets have actually held up pretty darn well.

As was mentioned at the outset, the DJIA is the worst performer of the major indices. But take a look at the chart below. Is this the picture of panic? Doesn't the current selloff look orderly? Is there any technical reason to throw up one's arms run for the hills?

DJIA Daily

Now take a gander at a chart of the S&P 500. Sure, the last couple weeks haven't been great. And yes, the index did fail to hold above the old highs. However, note the thin blue line drawn onto the chat which represents the uptrend that has been intact since June (and yes, that could be extended back to March if one so desired). The point is that despite all the doom and gloom out there in the press, the index most often associated with the overall stock market is still in an uptrend.

S&P 500 Daily

Next up is the NASDAQ, also known as the "technology-ladened" stock market index. If the first question that comes to mind is whether or not this chart covers the same time period the charts of the DJIA and S&P 500 shown above, you have earned a gold star. The bottom line here is that there is no panic and no consternation evident. Heck, there isn't even a pullback to be found on the chart. As such, it is safe to say that there does not appear to be much fear in four-letter-land at this stage.

NASDAQ Daily

Ditto for the chart of the Russell 2000. While the index is struggling a bit with the uber-short moving averages plotted on this chart, the price of the index is still above the August highs, and the 18-day moving average (the teal line) is still moving up. Thus, by definition, the trend of the Russell is still positive.

Russell 2000 (Smallcaps) Daily

A similar pattern can also be seen on the chart of the Midcap index as well as the yield of the 10-year Treasury note. The bottom line is this: While the press and certain politicians may be trying to stir up some fear, there doesn't seem to be any real panic in the markets at this point in time.

But then again, tomorrow is another day and the deadline clock is ticking.

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 Gov't Shutdown and 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: Negative
(Chart below is S&P 500 daily over past 1 month)

Intermediate-Term Trend: Moderately 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: 1660

  • 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 oversold 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: positive

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...

Same song, different day. Traders in Europe and the U.S. continue to fret about what could happen should the U.S. Government default on its debt. However, there does not appear to be any panic in the air so far today. As such, today's session will likely once again be driven by the hopes/expectations that a deal can get done sooner rather than later.

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: +0.89%

- Shanghai: +1.09%

- London: -0.77%

- Germany: -0.06%

- France: -0.33%

- Italy: -0.02%

- Spain: -0.48%


Crude Oil Futures:
+$0.31 to $103.54

Gold: -$4.70 to $1320.40

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

10-Year Bond Yield: Currently trading at 2.639%

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

- S&P 500: -1.07

- Dow Jones Industrial Average: -2

- NASDAQ Composite: -1.04

Thought For The Day...

The dictionary is the only place where success comes before work. - Mark Twain

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.

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