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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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Understanding the Wall Street Cliché: It's Not the News...

One of the oldest clichés on Wall Street suggests that "It's not the news, but how the market reacts to the news that matters."

Cutting to the chase, Wednesday's market action seemed to exemplify this concept.

While large intraday swings in stocks isn't exactly a new phenomenon, moves of more than one percent tend to be associated with news, rumors, or headlines. And although there was a fair amount of economic data (Retail Sales, CPI, Architectural Billing Index, and Existing Home Sales) as well as an abundance of Fed chatter, there wasn't any key piece of information that seemed to spark the 15-point decline in the S&P 500.

Related: Are There Reasons To Be Nervous About The Stock Market Right Now?

Bullard Started Things Off

Speaking of Fed chatter, St. Louis Federal Reserve Bank President James Bullard got into the act early on Wednesday by "talking taper" just as the S&P 500 (NYSE: SPY) was making the high of the day.

Referring to when the Fed might begin tapering their QE program, Bullard told a Bloomberg television audience, "It is definitely on the table, but it is going to depend on the data." When asked about the timing of the first taper move, he replied, "A strong jobs report, I think, would increase the probability some for a December taper."

Oh, and yes, the algos noticed Bullard's comments, which were good for six or seven S&P points in a matter of minutes.

Then The Minutes Hit

Next, the volatility and the dance to the downside picked up meaningfully upon the release of the minutes from the latest FOMC meeting. However, the strange part is the fact that the Fed minutes didn't really say much of anything - and there definitely wasn't anything new to be gleaned.

Sure, the October FOMC minutes did show that the committee had enjoyed a spirited debate on a number of topics. However, the minutes themselves did not provide any additional insight into the specific timing of when the Fed would begin tapering its QE3 program.

In fact, it was the discourse on the topic of when the taper would begin that was cited as one of the primary problems for the market (i.e. the reason the sell algos were unleashed). According to the minutes, the committee struggled to build a consensus on how they would act under different scenarios. For example, the committee members couldn't agree on what to do if the economy doesn't improve and the benefits of QE program begin to outweigh the costs.

Apparently this confusion and the fact that the FOMC did not completely close the door on tapering in December caused some traders to throw a mini "taper-tantrum" Wednesday afternoon.

Related: What's The Deal With Big, Round Numbers?

What's The Takeaway?

So here's the takeaway. While it is unlikely that the Fed will begin to taper their QE program a week before Christmas, the committee is compelled to say that they remain "data dependent" at this stage. However, every time the algos see the words "taper" and "December" in the same paragraph, sell programs are run.

From a big-picture perspective however, the fact that stocks fell for a third straight day on #NoNews, may be telling. Remember, as the cliché goes, "It's not the news...."

Time to Take a Break?

The key here is the general consensus seems to be that it's time for the current joyride to the upside to take a break. As was discussed in yesterday's missive, there are lots of reasons to be nervous right now. The length of the bull market. Earnings. Valuations. Sentiment. Economic growth. The taper, etc. As such, the vast majority of traders appear to be playing for a pullback right now. And sometimes, these things become self-fulfilling.

But here's the rub. The same folks that are pounding the table about a pullback needing to happen right here and now are also the ones who have been dead wrong all year. Oops.

Sure, stocks are extended. And yes, this rally has run an awfully long way. Oh, and the amount of time that has elapsed since the last correction of 10 percent or more is now quite long. But, it is also important to recognize that Ms. Market doesn't generally appease the masses.

So, while the algos are able to push the indices around in the near-term, the bears have been largely unsuccessful this year. Therefore, unless a real reason comes along, the buy-the-dip crowd may just continue to do their thing into the end of the year.

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 State of the Bull Move
      3. The Outlook for Economic Growth

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: 1775
  • Near-Term Resistance Zone(s): 1800

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: 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.

  • Overbought/Oversold Condition: The S&P 500 is overbought from a short-term perspective and is overbought from an intermediate-term point of view.
  • Market Sentiment: Our primary sentiment model remains 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: Moderately 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...

The great question is not whether you have failed, but whether you are content with failure. -Chinese Proverb

 

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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