As a card-carrying member of the glass-is-at-least-half-full stock market club , I will have to admit that my bias is to lean bullish when evaluating the market/economic landscape. I learned in the mid-1990's that it was a dumb idea to stay negative on the U.S. economy and/or stock market for long. Sure, it can pay to get negative for a while, but overstaying your welcome as a "Negative Nancy" can prove problematic in this business.

Of course, there are those who take the opposite view, and in short, this is what makes a market. It is worth noting that after two devastating bear markets within a 9-year span between 2000 and 2008, the perma-bear camp saw dramatic increases in their membership. And this group is continuing to expand in the current environment.

Everywhere you turn today, you will find an article about bubbles forming, overvaluations, macro concerns, the next crisis, etc. All of which draw the same conclusion... investors will see a repeat of the 2008 Credit Crisis and stocks will get smoked again.

Bear Arguments Growing in Number

While the bear camp argues that their concerns are growing in number this year, the result of such worry has been anything but profitable. The S&P 500 currently sports a gain of +6.78% as of Monday's close, the DJIA is up +2.9%, and the NASDAQ Composite has advanced +5.94%. And while the Russell 2000 smallcap index is down -1.4% on the year, it is up something on the order of +220% for the current bull market.

iShares Russell 2000 ETF (IWM) Monthly

It is true that the current divergence between the action seen in the blue chip indices relative to the smallcaps can be a problem. Yet, the above chart shows that from a long-term perspective, the bulls simply must be given the benefit of the doubt here.

Sure, the index could be rolling over. And if the monthly chart does break below the low seen earlier in the year, one could argue that a long-term downtrend has begun. But the bottom line is that the Russell just isn't there yet.

Frustration May Be Setting In

Let's face it; the bears have had ample opportunities to get something going to the downside this year - especially lately. Lest we forget, here are a few of the "issues" the bears have tried to take advantage of recently:

• Fed appears to be saying rates could rise sooner than expected
• Renewed bank problems in Europe (Portugal's Banco Espirito Santo)
• Europe's economy is clearly slowing
• There is a hint of inflation in the air
• Russia's refusal to play nice in Ukraine
• Malaysia Airline MH17 flight shot down by pro-Russian rebels in Ukraine
• Iraq is back in the news
• Russian sanctions could hurt Europe's economy further
• Israel has invaded Gaza again
• The "momentum meltdown" continues to weigh on smallcaps
• Yellen's "Irrational Exuberance" moment regarding biotechs, internet, and social media names

During a weak market, any of the above could have caused the U.S. stock market to crumble. And yet, after six down days in the last eleven sessions, the S&P 500 stands less than 12 points (or 0.6%) from its most recent all-time high set on July 3, 2014.

The point on this fine Tuesday morning, is that the bears have got to be getting frustrated at this stage of the game. And with short interest at high levels, further advances in the S&P could cause the Johnny-come-lately-bears to throw in the towel.

Should this happen, stocks could easily experience a "blow off" to the upside. This type of action has occurred many times throughout history. And put simply, it is the "blow off" top that could set up the meaningful decline - or even a bear market - that so many are calling for.

But for now, the bears can't be happy that the economy is growing at a decent clip, earnings are at all-time highs, interest rates remain low, and inflation is not a concern.

Turning To This Morning...

Investors around the globe appear to be in a better mood this morning. There seems to be some relief that (a) Russia has responded to U.N. demands to gain access to the MH17 crash site and (b) pro-Russian separatist rebels have handed over the two black boxes from the aircraft. In addition, the overall feeling is that this quarter's earnings parade is solid. Stock market indices are up around the globe and as such, U.S. futures are following suit.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
- Japan: +0.82%
- Hong Kong: +1.69%
- Shanghai: +1.00%
- London: +0.79%
- Germany: +0.77%
- France: +0.84%
- Italy: +1.56%
- Spain: +1.19%

Crude Oil Futures: +$0.13 to $104.72

Gold: -$2.50 at $1311.40

Dollar: lower against the yen, higher vs. euro and pound.

10-Year Bond Yield: Currently trading at 2.478%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +7.57
- Dow Jones Industrial Average: +55
- NASDAQ Composite: +18.11

Thought For The Day...

You don't have to have it all figured out to move forward.

Important Reminder: In order to keep pace with our growth, better serve our advisors and clients, and to provide scale for future growth, Heritage is teaming up with CONCERT Global - an SEC Registered Investment Advisor with more than $2 Billion in assets under management. CONCERT will provide more robust back-office, compliance, technology, and trading infrastructure. Client packets to make the transition will be arriving in the coming weeks.

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

David D. Moenning
President, Chief Investment Officer Heritage Capital
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Positions in stocks mentioned: None

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 nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

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