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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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Product Performance

Did Twitter Mark 'The Top'?

While business travel can certainly be a chore at times (can't the folks at American Airlines figure out to schedule maintenance BEFORE they board the entire flight?) it also allows one the opportunity to get away from the blinking screens, the phones, the tweets and spend some time thinking about the big picture market environment.

Uh, It's a Bull Market

Although Thursday's algo-induced dive certainly wasn't any fun and definitely did some damage to the charts on a near-term basis, it is important to recognize that the S&P 500 is up 22.5 percent so far this year and that if calendar 2013 ended yesterday, the year's return would be one of the top results seen over the last fifteen years.

So, while the "ignition algos" may have created some fear yesterday and the bears could certainly spend some more time exploring the downside in the coming days, the key to this market continues to be that it's a bull market until proven otherwise.

Bears: The Top is In

The bear camp will argue that "all good things come to an end" and that since "no one rings a bell at market tops," investors should be ignoring all the chatter about new all-time highs and instead be focusing on the next big decline.

Those dressed in fur this morning also argue that Twitter's (NYSE: TWTR) IPO marked an important emotional top for the market as many analysts feel that the firm's inflated value is an indication of a "bubbly" market environment. Therefore, there was no shortage of traders looking to "call the top" yesterday and make a name for themselves by moving to the short side after TWTR gained 73 percent on its first day of trading.

However, remember that the bears have been singing a similar tune all year. So, before one runs out and starts buying the inverse stock market ETFs that profit when stock prices fall (SH, SDS, SPXU come to mind) or start "buying volatility" via the VXX, VXY, VIXY, etc., there are a couple of points worth considering.

The Public is Buying

As if the thirty-two record closes for the S&P 500 weren't a clue, the fact that the public appears to be going gaga for stock funds this year should remind investors that there is money coming into this stock market.

According to TrimTabs, the public has poured $277 billion into U.S.-listed stock mutual funds and ETFs so far this year. For those keeping score at home, that's the most for any calendar year since the $324 billion of inflows seen in 2000.

Further, the public appears to be emboldened by the market's recent new highs as about one-sixth of that cash has been placed into stock funds and ETFs in October alone. TrimTabs notes that the $45.5 billion in net inflows seen in October was the fifth-highest monthly total on record.

Remember, Strength Begets Strength

Yes Virginia, it is true that the public tends to come late to most stock market parties. And yes, it is also true that the last time the public appeared to be this excited about stocks was right about the time the tech bubble was bursting.

However, it is also worth noting that new highs in the stock market tend to beget more new highs before the bears ultimately gain control.

According to Ned Davis Research, the stock market tends to move higher - a lot higher - on average when the S&P 500 first moves to a new high after a bear market. NDR's data shows that since 1928, the S&P has gained an average of 40.3 percent over a period of 644 days AFTER the first new high following a bear market has been reached.

On a median basis, the S&P has gained 18.4 percent over 417 days following a new high.

Near-Term: It's All About the Fed

However, this morning the game appears to be all about the Fed. While the Jobs report showed the economy produced nearly double the number of new jobs last month than had been anticipated, traders appear to be selling the news.

The idea here is simple really. Traders assume that the report puts "the taper" back on the table at the December FOMC meeting. And since the majority of economists surveyed by the WSJ are currently looking for the taper to begin either in January or March, the good news on the economy may be bad for stocks as traders fret about the outlook for the "liquidity trade."

The bottom line is the bears have had lots of chances to get something going of late and have squandered nearly all of them. Thus, the question is if this time will be different.

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. The State of Fed Policy

      2. The Outlook for Economic Growth

      3. The State of the Earnings Season

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: Moderately Negative
(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: 1740

  • Near-Term Resistance Zone(s): 1760-70

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: Negative

  • Price Thrust Indicator:Positive

  • Volume Thrust Indicator:Negative

  • Breadth Thrust Indicator:Neutral

  • Bull/Bear Volume Relationship: Moderately Positive

  • Technical Health of 100 Industry Groups: 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 modestly oversold from a short-term perspective and is very overbought 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.

Thought For The Day...

When in doubt, just take the next small step...

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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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