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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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What Do The Cycles Say For November?

After two consecutive days of declines, the question of the day is if the current rally, which began in early October, is just resting or about to morph into the type of month-long corrective phases that have been prevalent since June?

Since the middle of April, the trend of the stock market has been fairly easy to identify. Stocks have tended to rally for a month or so and then correct for a month. In short, it's been a stair-step affair with the end result being positive. However, both teams have had decent opportunities for the past six months.

Both Teams Have a Case

Currently, there are good arguments from both sides of the field. The bears contend that "the taper" being back on the table as a possibility in December means that the current joyride to the upside is over. Those dressed in their furry costumes also say that earnings have not been all that great and that higher rates will start to bite at some point soon.

However, the bull camp suggests that March/April 2014 remains the most realistic time frame for the Fed to begin tapering their bond-buying stimulus program and as such, the switch for liquidity trade is back in the "on" position. In addition, those wearing the rose-colored Ray Bans argue that the fundamental backdrop for stocks remains positive and that any dips should be bought for the foreseeable future.

Time To Review The Cycle Projections

Although the economic news of the day is likely to dominate trading in the coming week (remember - the October Jobs report is due out next week), investors should note that the month of November has a pretty good reputation for generating gains. So, with the market looking uncertain, it is time to review what the historical cycles have to say about the month October.

Since this is the eleventh review of the cycles and cycle composite this year, there is probably little need to go over all the disclosures/disclaimers again. However, it is important to recognize that the analysis of cycles (or any other indicator) should not be used in a vacuum or as a stand-alone indicator. However, the data continues to be an important input into our daily and weekly Market Environment models.

For anyone new to this analysis, the cycle composite is a combination of the one-year seasonal, the four-year Presidential, and the 10-year decennial cycles - all going back to 1928.

November Has a Decent Reputation

History shows that the month of November begins a very strong seasonal period for the stock market. If one wanted to stick with the historical tendencies, they would buy the low seen in November and then "sell in May and go away." In addition, November contains strong seasonality around the Thanksgiving holiday and has traditionally ushered in the year-end rally.

Is The Market In Sync With the Cycle Projections?

The first step in the analysis of the cycles is to get a feel for whether or not the cycle projections are "on" or not at the present time. Looking at how the market acted relative to the cycle composite in October, it should be noted that the stock market went almost directly opposite the cycle composite's projection during the month.

From an intermediate-term point of view, the market (as defined by the S&P 500) appears to be trending higher while the cycle composite projection has been calling for a steady downtrend since August. However, from a longer-term point of view, stocks are largely in line with the forecast from the cycles.

What Does November Look Like?

The next step is to take a look at what the cycle projections are calling for during the coming month:

One-Year Cycle: The picture painted by the one-year seasonal cycle is pretty positive. November has had a tendency to start off strong as rallies during the first two-thirds of the month have been the norm. However, a relatively brief (a week or so) pullback tends to occur sometime after the middle of the month before the traditional year-end rally begins around Thanksgiving. The bottom line: November starts and finishes strong.

Four-Year Cycle: The four-year Presidential cycle projection is not nearly as encouraging. Historically, the month has been a see-saw affair with only a slightly upward bias. But the bottom line here is the month does end higher than it began.

10-Year Cycle: The bad news is the 10-year cycle looks very different from the upbeat one-year cycle and the modestly positive four-year cycle. The 10-year suggests the month will be a steady correction and end on a negative note (with a modest loss for the S&P 500 on the month).

The Cycle Composite: The overall cycle composite is obviously a combination of the individual cycles. So, with the one-year calling for a positive month, the four-year looking for a modest advance, and the ten-year projecting a decline, it isn't surprising that the composite suggests a flat-to-modestly down month.

What To Look For

So there you have it. The various cycles suggest that stocks could go higher, lower, or sideways. Not helpful, right?

With the cycle outlook not exactly clear, it is probably a good idea to utilize a flexible approach during November and to stay on your toes. After all, the S&P is up more than 23 percent year-to-date and there is a fair amount of uncertainty on the horizon. Thus, the best play is to put away the crystal ball and attempt to stay in tune with what the market IS doing. But then again, we say that EVERY month!

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: Mooderately Positive
(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: 1745

  • 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: Neutral

  • 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 overbought 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

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Thought For The Day...

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

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

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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.

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Tags: November

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