Save the usual intraday algo runs that move the market up and down 1 percent or so just for the heck of it, the stock market has been pretty dull lately. In fact, as defined by the S&P 500 index, the market finished Monday less than 6 points (0.3 percent) from where it closed on July 1. Yippee.

The good news is that yesterday's move of 0.57 points or 0.03 percent doesn't require much explanation or analysis. In short, vacation season is in full swing and those traders still at their desks are likely waiting to hear what Ms. Yellen has to say this week.

This this affords us some time to explore a few more of our 20 Reasons to consider taking your foot off of your portfolio's gas pedal.

Yesterday, we looked at the theory that it usually doesn't pay to fight the Fed, the idea that some inflation might be problematic for the bulls, and the fact that this is one of the longest bull markets in history.

But before we start making more check marks, it should be noted that this is NOT a list of reasons to sell stocks. No, the trend is CLEARLY up and given the run that this market has enjoyed, this remains a bull market until proven otherwise.

However, all good things in the stock market come to an end - eventually. And there are usually plenty of warning signs available to those paying attention. So, the idea is to keep one's eyes peeled for problems that could call for this market to change costumes. In other words, when "issues" begin to crop up, history has shown that it can be a good idea to take less risk. And since there are still 17 reasons to be cautious still scribbled on my pad, we'd best get to it.

The Neighbors Are U-G-L-Y

Market technicians love to take the current chart patterns and look back at history to try and find charts that display similar tendencies. Well, to be clear, traders love to have their computers do the searching to find markets with similar price action as the days of holding charts up to the window have long since passed. This is often referred to as seeking out the "nearest neighbor" to the current market.

Before proceeding, it is important to recognize that markets do not always follow set patterns or historical cycles. However, when markets DO begin to latch onto a pattern or cycle that has occurred before, the parallels can be eerie.

So what are the best matches to this bull run that began on 3/9/09? First there was the bull that began in November 1950. Then there was the start of the secular bull in April 1982. Next was the run that commenced in March 1994. And finally, the bull that occurred just prior to the 2007-08 Bear, which started in September of 2002 also bears a striking resemblance to the current joyride to the upside.

So, what happened 5+ years into each of these "nearest neighbors," you ask? In short, nothing good. In 2007, the financial crisis was already underway and stocks fell precipitously. In both 1950 and 1994, the S&P 500 entered a meaningful pullback within a month of where we are now. And in 1987, the market pushed higher into August before, well, you know what happened after that.

So, should we expect the market to continue to follow either the 2008 or 1987 paths? Probably not. But, this stuff IS out there and is fairly well known among traders. Therefore, if the bulls were to find a raison d'être, well, at least you've been warned.

Speaking of Cycles...

For anyone new to our analysis of the cycles (the closest thing we have to a crystal ball), we like to regularly check in on what we call the cycle composite, which a combination of the one-year seasonal, the four-year Presidential, and the 10-year decennial cycles - all going back to 1928.

By combining these three cycles, the cycle composite is produced. And while expecting the market to follow the cycles exactly is just plain silly, it is surprising how often the market tends to follow the general direction of the composite - especially when viewed from a long-term perspective.

The problem is the cycle composites for both the S&P 500 and the NASDAQ from now until the beginning of October are NOT pretty.

The composite for the S&P projects a downward sloping stair-stepped trend from July through September while the NASDAQ's trend is pretty much straight down until the first week in October.

The good news is that the market is not really in tune with the cycle composite at this particular juncture. Here's hoping it stays that way.

No Mo

Most healthy advances in the stock market are accompanied by strong momentum. However, at this stage of the game, this bull has very little "mo" going for it. And the bottom line is that if this condition continues to exist, history suggests that things won't end well.

With the S&P 500 just two days removed from an all-time high, one would expect to see trend, breadth, and volume indicators flashing "thrust signals" - indicating that there was some "oomph" behind the move. Sadly, none of our price, breadth and volume thrust indicators are positive at this time. In fact, two are negative and one is neutral. As a reminder, in a healthy market, all three indicators would be positive.

In sum, this is the very definition of a "no mo" environment.

Coming Up... Some of the other "issues" we'll explore include: The reading of our Market Environment Model, market liquidity, the levels of speculation, sentiment readings, public and private exposure levels, valuations, the return of the politicians, Europe's economy, streaks, algos and their impact, all things geopolitical, the VIX and so on...

Turning To This Morning

Although Israel has announced it will escalate the campaign in Gaza, overnight markets were up nicely. An improved outlook in China as well as the linking of stock exchanges in Shanghai and Hong Kong seems to be fueling renewed interest in the region as Chinese equities finished higher for a sixth consecutive session. European markets appear to be heartened by a constructive bond auction in Italy. And here at home traders are focused on earnings and tomorrow's Fed announcement. Currently U.S. stock futures are pointing to a modestly higher open.

Pre-Game Indicators

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

Major Foreign Markets:
    - Japan: +0.57%
    - Hong Kong: +0.87%
    - Shanghai: +0.23%
    - London: +0.47%
    - Germany: +0.56%
    - France: +0.63%
    - Italy: +1.18%
    - Spain: +0.55%

Crude Oil Futures: -$0.62 to $101.05

Gold: +$4.50 at $1307.80

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

10-Year Bond Yield: Currently trading at 2.477%

Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +3.09
- Dow Jones Industrial Average: +36
- NASDAQ Composite: +6.51

Thought For The Day:

Try smiling early and often today...

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.

Positions in securities mentioned: None

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

David D. Moenning
President, Chief Investment Officer
Heritage Capital Research
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