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

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

Despite the two-day pullback this week, the S&P 500 (NYSE: SPY) begins "hump day" with a gain of 25.36 percent so far in 2013. And yet, everybody - yes, even those in the bull camp - seems to be more than a little nervous right about now.

The Bears Should Be Nervous

For all of those who have been coming to work each day with their bear hats donned, it isn't surprising that they might be a tad uncomfortable at the present time.

The major indices are at all-time highs. The economies of the globe are improving. And the calamities that were prognosticated to occur at the beginning of the year have failed to materialize. So, instead of a 20+ percent gain, the glass-is-half-empty crowd may not have much to show for the year. Nervous indeed.

Related: The Art of Trading Responsibly With BEAM

The MPT Crowd is Definitely Nervous

Next up, anyone using those fancy diversification strategies that have become all the rage lately (which, by the way are based on a heaping helping of hindsight) has been introduced to the term "diworsification" this year. In short, the U.S. stock market has been the place to be in 2013. And the idea of diversifying your portfolio across the bond markets, emerging markets, gold, etc hasn't been helpful - at all.

Bonds, which have been the safe haven and a great way to generate consistent returns for as long as anyone can remember, look like they are morphing from bull to bear. As such, all those folks leaning on their bond portfolios have been sorely disappointed.

The bottom line for anyone subscribing to that Nobel Prize winning MPT thing, as well as the advisors who are promoting such an approach, is that they might be feeling more than a little queasy about their strategy here.

But the Bulls?

Then there are the bulls. What's not to like, you might ask. Stocks are up big. The Fed is friendly. Earnings are at record highs. Inflation is low. Rates are still VERY low. And the trend is your friend. So, why on earth would the bulls be nervous?

The answer is really pretty simple.

If you are a buy-and-hope investor, the term "fat, dumb, and happy" likely applies right about now. However, for anyone looking to extract profits from bull markets and then avoid the pain and destruction of bear market periods, the 2013 joyride to the upside may be posing a serious dilemma.

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

You see, unless one employs a disciplined approach to their investing strategy, they were unlikely to have enjoyed the big gains that have been available in the stock market this year. The key is to understand that this move was an easy one to miss.

Unless you were able to blindly pull the trigger and make some moves that likely felt pretty uncomfortable at the time (the best ones usually do), you may have decided to play it safe on several occasions. It may have felt better to wait for "proof" that the market was for real before committing capital. But as history has proven time and time again, waiting proof in the stock market can be very expensive.

The point is that a great many investors who may currently be "long and strong" haven't gotten all of the gains from this year's bull run.

Reasons To Be Nervous

Anyone who came late to this year's market party, may indeed be starting to feel a bit nervous. Here's why. The bull market is getting old. Valuations are starting to move into, or at the very least towards, the expensive zone. Divergences are starting to crop up. Sentiment indicators have been flashing yellow (if not red) lights for a while now. Corporate revenues haven't been improving at the same pace as earnings. The economy is still muddling forward at a painfully slow rate. And the Fed will have to turn off the QE spigot at some point.

To be sure, the stock market can continue to go higher. Remember, bull markets can and often do move much farther and last longer than anyone can imagine. However, given the extended nature of the bull market and the fact that algos can move the market in a hurry these days, it wouldn't take much to get a dance to the downside started. And if there was a decent reason behind the decline, well, some damage could be done.

So, despite the fact that stocks are enjoying the best year in the last fifteen, investors may be getting a little skittish at this time. Therefore, it is probably a good idea to dust off those risk management strategies as 2014 approaches. Because you just never know when something might come along to get the bears riled up.

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: Moderately 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: 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: Moderately Positive
  • 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...

An inch of time cannot be bought with an inch of gold -- 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 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 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, 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

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 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.

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