Posted |
Indicator Review: It's a Bull Market Until Proven Otherwise image

Good Monday morning and welcome back. Since it's the start of a new week, let's get right to our objective review the key market models and indicators. To review, the primary goal of this weekly exercise is to remove any subjective notions and ensure that we stay in line with what "is" happening in the markets. So, let's get started...

The State of the Trend

We start each week with a look at the "state of the trend." These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.


View Trend Indicator Board Online

Executive Summary:

  • The short-term Trend Model remains neutral this week.
  • The short-term Channel Breakout System remains on a buy signal. A break below 2418 would flip the trading system to sell.
  • The intermediate-term Trend Model is still solidly positive
  • The intermediate-term Channel Breakout System is also still on a buy signal and requires a move below 2350 to reverse.
  • The long-term Trend Model remains positive
  • The Cycle Composite points lower this week before turning back up the week after.
  • The Trading Mode models are currently conflicted but remain in Mean-Reverting mode at this time.

The State of Internal Momentum

Next up are the momentum indicators, which are designed to tell us whether there is any "oomph" behind the current trend...


View Momentum Indicator Board Online

Executive Summary:

  • The short-term Trend and Breadth Confirm Model is back to positive. Note that this model has done a lot of flip-flopping recently.
  • Our intermediate-term Trend and Breadth Confirm Model continues to provide an upbeat message
  • The Industry Health Model has improved enough to keep the model in moderately positive territory.
  • The short-term Volume Relationship is positive but by the thinnest of margins.
  • The intermediate-term Volume Relationship is still in positive mode but with declining momentum
  • The Price Thrust Indicator has moved to negative - but only by a small degree
  • The Volume Thrust Indicator improved to neutral last week.
  • The Breadth Thrust Indicator is also neutral.
  • My view is that the momentum of the market is lacking and not as strong as a glance at the board might indicate.

The State of the "Trade"

We also focus each week on the "early warning" board, which is designed to indicate when traders may start to "go the other way" -- for a trade.


View Early Warning Indicator Board Online

Executive Summary:

 

  • From an intermediate-term view, stocks have also retreated from an overbought condition and are now neutral.
  • The Mean Reversion Model continues to be stuck in neutral
  • The most recent signal from the VIX Indicator was a buy. However, the level of the VIX itself is approach sell signal territory.
  • From a short-term perspective, market sentiment is neutral.
  • The intermediate-term Sentiment Model remains solidly negative as complacency is high.
  • Longer-term Sentiment readings are also overly optimistic - a negative.

    The State of the Macro Picture

    Now let's move on to the market's "external factors" - the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.


    View External Factors Indicator Board Online

    Executive Summary:

    • The Absolute Monetary model has held onto the recent gains, which is likely a result of falling yields.
    • On a relative basis, our Monetary Model shows no change and is neutral.
    • Our Economic Model (designed to call the stock market) now appears to be in sync again with the market.
    • The Inflation Model ticked higher last week but is still within the neutral range.
    • Our Relative Valuation Model remans neutral and near the lowest levels seen since 2010.
    • The Absolute Valuation Model remains solidly negative.

    The State of the Big-Picture Market Models

    Finally, let's review our favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.


    View My Favorite Market Models Online

    Executive Summary:

    • The Leading Indicators model, was our best performing timing model during the last cycle, perked up nicely two weeks ago but the model reading pulled back last week - still w/in the positive zone.
    • The Tape remains "constructive" at this time - but not without issues.
    • The most recent signal from the Risk/Reward model was a sell, but the model is now neutral.
    • The External Factors model has improved recently - this remains a positive for the bulls.

    The Takeaway...

    All in, the message from the indicator boards hasn't really changed much. The bottom line is this is a bull market until proved otherwise and investors should continue to give the bulls the benefit of the doubt. However, this is not a low-risk environment and having some dry powder available to deploy into any meaningful declines in the second half of the year "feels right" to me here.

    Thought For The Day:

    Do not ask for inspiration to guide your footsteps if you're not willing to move your feet.

    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 the U.S. Economy
          2. The State of Earning Growth
          3. The State of Trump Administration Policies

     

    Wishing you green screens and all the best for a great day,

    David D. Moenning
    Chief Investment Officer
    Sowell Management Services

    Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.

    Looking for a "Modern" approach to Asset Allocation and Portfolio Design?

    Looking for More on the State of the Markets?


    Disclosures

    The opinions and forecasts expressed herein are those of Mr. David Moenning 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 is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

    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.

    David D. Moenning is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

    Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

    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.

    Advisory services are offered through Sowell Management Services.