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It is rare that a single session can make or break a market trend. And while the jury is still out on which way Ms. Market is leaning at the moment, Friday's action gave both teams something to crow about. You see, on the one hand the NASADAQ roared higher to another new all-time high on the back of the likes of (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOGL). Yet on the other hand, the action in the rest of the major indices was just plain disappointing.

When the bulls are large and in charge, the type of action that occurred in the "four horsemen" of the NASDAQ would normally lift all market indices. But on Friday, while the NASDAQ 100 was rockin' higher by +1.33%, the S&P gain totaled +0.23% and the Dow rose by just +0.12%. And things got worse from there as the Russell 200 actually fell -0.33%, the mid-caps dropped -0.41%, the banking index fell -0.70% and the semis were smoked for a loss of -1.66%. Therefore it is safe to say that the major indices were definitely not all rowing in the same direction on Friday.

Although one day does not a trend make, the case can be made that a divergence may be developing here. And while we did just review the charts on Friday, it is probably a good idea to go through the action of the major indices again this morning to see if the message remains the same.

For starters, there is no change in terms of the message coming from the S&P 500. In short, while the gain on Friday felt good for much of the day (well, until the late-day sell programs hit, that is) the trading range that began at the end of February remains intact. And while the bulls suggest that the major index is on the brink of a breakout, the bears will argue that another trip through the range is the most likely outcome here.

S&P 500 Index - Daily

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The chart of the NASDAQ though tells a completely different story. With the help of the biggest of the big names soaring to double-digit gains on Friday, the "NAZ" - along with its little brother the NASDAQ 100 - appears to be in a clear-cut uptrend. The bulls contend that Friday's action put some distance between the index and the breakout level, which gives the composite some breathing room should prices pull back in the near-term.

NASDAQ Composite Index - Daily

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Usually when the NASDAQ enjoys a day in the sun, the small-caps go along for the ride - or perhaps even lead. However, Friday's action was the complete opposite of the norm as the Russell 2000 declined on the day. Cutting to the chase, the action suggests that there is now some doubt entering the game here as a meaningful pullback in the near-term could easily break the uptrend that has been intact for months now. This remains something to watch.

iShares Russell 2000 (IWM) - Daily

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Finally, we move on to the tie-breaker: the mid-caps. The "middies" have been leaders for some time now and the weekly chart remains in pretty good shape. However, Friday's action would appear to represent a fairly emphatic denial of the index's entry into the Promised Land. The bottom line here is that when the semis, banks, and oils all struggle, the mid-cap index will too.

Midcap SPDR Trust (MDY) - Daily

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The message from the charts would appear to be that while the NASDAQ is dancing to the beat of its own drummer, the rest of the major indices are still stuck in the same 'ol trading range. Thus, the 2120 zone on the S&P 500 would appear to continue to hold the key to the next move in the markets. But the real question of the day is if a dangerous divergence is developing. So, it is safe to say that this is no time to be asleep at the switch!

Turning To This Morning...

The song remains largely the same this morning as traders continue to discuss what the Fed will do and when, how the situation in Greece is going to turn out (the word across the pond today is that European leaders are now preparing for "Plan B" - a default), China's ongoing ride for stock market investors (Shanghai soared +3% overnight), and the state of the earnings season. On that note, the world's largest company reports after the close today and as such, you can rest assured that the coverage on the financial networks is likely to be Apple-centric again today. And finally, U.S. stock futures currently point to a green open on Wall Street.

Pre-Game Indicators

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

Major Foreign Markets:
    Japan: -0.19%
    Hong Kong: +1.33%
    Shanghai: +3.03%
    London: +0.50%
    Germany: +1.35%
    France: +0.66%
    Italy: +0.66%
    Spain: +0.44%

Crude Oil Futures: -$0.24 to $56.96

Gold: +$11.20 at $1186.20

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

10-Year Bond Yield: Currently trading at 1.928%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +5.46
    Dow Jones Industrial Average: +70
    NASDAQ Composite: +17.47

Thought For The Day:

Big shots are little shots that kept shooting. -Chistopher Morley

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/ECB Policy
      2. The State of the Earnings Season
      3. The State of the U.S. Economy
      4. The State of the U.S. Dollar

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: 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 2 years)

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:

  • Key Near-Term Support Zone(s) for S&P 500: 2110
  • Key Near-Term Resistance Zone(s): 2120

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 (Short-Term): Positive
  • Price Thrust Indicator: Positive
  • Volume Thrust Indicator: Neutral
  • Breadth Thrust Indicator: Neutral
  • Bull/Bear Volume Relationship: Positive
  • Technical Health of 100+ Industry Groups: Moderately 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.

  • S&P 500 Overbought/Oversold Conditions:
          - Short-Term: Overbought
          - Intermediate-Term: Neutral
  • Market Sentiment: Our primary sentiment model is Neutral .

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.

  • Weekly Market Environment Model Reading: Positive

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

David D. Moenning
Founder and Chief Investment Strategist
Heritage Capital Research

Indicator Explanations

Trend and Breadth Confirmation Indicator (Short-Term) Explained: History shows the most reliable market moves tend to occur when the breadth indices are in gear with the major market averages. When the breadth measures diverge, investors should take note that a trend reversal may be at hand. This indicator incorporates an All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 5-day smoothing and the All-Cap Equal Weighted Equity Series is above its 25-day smoothing, the equity index has gained at a rate of +32.5% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +13.3% per year. And when both are below, the equity index has lost +23.6% per year.

Price Thrust Indicator Explained: This indicator measures the 3-day rate of change of the Value Line Composite relative to the standard deviation of the 30-day average. When the Value Line's 3-day rate of change have moved above 0.5 standard deviation of the 30-day average ROC, a "thrust" occurs and since 2000, the Value Line Composite has gained ground at a rate of +20.6% per year. When the indicator is below 0.5 standard deviation of the 30-day, the Value Line has lost ground at a rate of -10.0% per year. And when neutral, the Value Line has gained at a rate of +5.9% per year.

Volume Thrust Indicator Explained: This indicator uses NASDAQ volume data to indicate bullish and bearish conditions for the NASDAQ Composite Index. The indicator plots the ratio of the 10-day total of NASDAQ daily advancing volume (i.e., the total volume traded in stocks which rose in price each day) to the 10-day total of daily declining volume (volume traded in stocks which fell each day). This ratio indicates when advancing stocks are attracting the majority of the volume (readings above 1.0) and when declining stocks are seeing the heaviest trading (readings below 1.0). This indicator thus supports the case that a rising market supported by heavier volume in the advancing issues tends to be the most bullish condition, while a declining market with downside volume dominating confirms bearish conditions. When in a positive mode, the NASDAQ Composite has gained at a rate of +38.3% per year, When neutral, the NASDAQ has gained at a rate of +13.3% per year. And when negative, the NASDAQ has lost at a rate of -8.5% per year.

Breadth Thrust Indicator Explained: This indicator uses the number of NASDAQ-listed stocks advancing and declining to indicate bullish or bearish breadth conditions for the NASDAQ Composite. The indicator plots the ratio of the 10-day total of the number of stocks rising on the NASDAQ each day to the 10-day total of the number of stocks declining each day. Using 10-day totals smooths the random daily fluctuations and gives indications on an intermediate-term basis. As expected, the NASDAQ Composite performs much better when the 10-day A/D ratio is high (strong breadth) and worse when the indicator is in its lower mode (weak breadth). The most bullish conditions for the NASDAQ when the 10-day A/D indicator is not only high, but has recently posted an extreme high reading and thus indicated a thrust of upside momentum. Bearish conditions are confirmed when the indicator is low and has recently signaled a downside breadth thrust. In positive mode, the NASDAQ has gained at a rate of +22.1% per year since 1981. In a neutral mode, the NASDAQ has gained at a rate of +14.5% per year. And when in a negative mode, the NASDAQ has lost at a rate of -6.4% per year.

Bull/Bear Volume Relationship Explained: This indicator plots both "supply" and "demand" volume lines. When the Demand Volume line is above the Supply Volume line, the indicator is bullish. From 1981, the stock market has gained at an average annual rate of +11.7% per year when in a bullish mode. When the Demand Volume line is below the Supply Volume line, the indicator is bearish. When the indicator has been bearish, the market has lost ground at a rate of -6.1% per year.

Technical Health of 100 Industry Groups Explained: Designed to provide a reading on the technical health of the overall market, this indicator takes the technical temperature of more than 100 industry sectors each week. Looking back to early 1980, when the model is rated as "positive," the S&P has averaged returns in excess of 23% per year. When the model carries a "neutral" reading, the S&P has returned over 11% per year. But when the model is rated "negative," stocks fall by more than -13% a year on average.

Weekly State of the Market Model Reading Explained:Different market environments require different investing strategies. To help us identify the current environment, we look to our longer-term State of the Market 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.


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.

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, an advisor representative of CONCERT Wealth Management Inc. (CONCERT), is founder of Heritage Capital Advisors LLC, a legal business entity doing business as Heritage Capital Research (Heritage). Advisory services are offered through CONCERT Wealth Management, Inc., a registered investment advisor. For a complete description of investment risks, fees and services review the CONCERT firm brochure (ADV Part 2) which is available from your Investment Representative or by contacting Heritage or CONCERT.

Mr. Moenning is also the owner of Heritage Capital Management (HCM) a state-registered investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Neither HCM, Heritage, or CONCERT is registered as a broker-dealer.

Employees and affiliates of Heritage and HCM 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 Heritage/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.

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.