Greece, Oil Remain the Focal Points
Trying to pin down the primary driver of the current stock market is a little tricky as there seems to be three or four sources of input these days. For starters, there can be little doubt that traders are keeping an eye on Europe/Greece. Yet, the headlines coming from across the pond have not been rocking the market the way they did in the past. As such, one could conclude that the market is looking past all the grandstanding and political posturing, and assuming a deal will get done before month-end.
Next up is the Fed. The release of the minutes from the January FOMC meeting made it clear that what Janet Yellen's merry band of central bankers will or won't do next remains a key part of the market's puzzle. The takeaway from the latest Fed gathering is that the committee members appear to be more than a little concerned about the goings on in Greece, the slowdown in China, the strength of the dollar, and the crash in oil.
In short, the Fed minutes conveyed an unexpectedly dovish tone, suggesting to analysts that the Fed may be open to backpedalling on the idea of raising rates in June. The worry is that raising rates "prematurely" could dampen the economic momentum that has finally arrived in the U.S.
This brings us to driver number 3: The state of the U.S. economy. While most folks liken economic reports with watching paint dry, the message from the most recent round of data has been interesting. Cutting to the chase, with the exception of the jobs data, the vast majority of the economic reports have come in on the punk side. And given the preponderance of commentary coming from Fed governors these days, the thinking is that this has not been lost on Ms. Yellen's bunch.
What about oil, you ask? The bottom line here seems to be that unless oil resumes its dive, the worst has already occurred. And given that the major stock indices are sitting at or near cycle highs, the conclusion is that there are both positives and negatives as far as the economic impact from crude's rude move is concerned. But for now at least, the market appears to be none the worse for wear given the massive decline that has occurred in the oil patch.
So for now, there appear to be cross currents in the market and yet, the indices are sitting at all-time highs. So, unless Greece decides to do something stupid...
Turning to this morning's trade, the focus remains on Greece. The fact that the Greek government has sent European creditors its proposed compromise to end bailout impasse has aided sentiment today. There are also rumors that the Germans are demanding that Athens put capital controls on the banks, but this has been denied by Greek officials. European markets opened lower but have since moved back toward breakeven. Chinese markets are closed for holiday. Finally, oil is also back in the spotlight this morning as API data shows supplies have surged. Crude futures are diving more than 4% in response and U.S. futures point to a slightly lower open in the early going.
Current Market Environment
Sometimes this game is all about perspective. For example, someone watching the intraday action of the stock market might be inclined to believe that the market is weak as sell programs tend to hit each and every time the S&P 500 hits a new high. Yet, those looking at only a daily or weekly chart of the market indices are likely to have a bullish view. And then there are our indicators/models, which at this stage suggest that we should side with the bulls. In sum, THIS is the reason that everyone in the game isn't rich!
There is nothing new to report on the technical front with the exception of the fact that stocks are now overbought from both a short- and intermediate-term perspective. In addition, one of our VIX indicators flashed a sell signal yesterday, indicating that risk may be on the rise. But the key to the next move in the market remains the question of whether or not stocks have broken out of the recent range. Stay tuned!
S&P 500 - Daily
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Here are the Pre-Market indicators we review each morning before the opening bell...
Major Foreign Markets:
Hong Kong: closed
Crude Oil Futures: -$2.15 to $49.99
Gold: +$17.30 at $1217.50
Dollar: lower against the yen, euro and pound
10-Year Bond Yield: Currently trading at 2.070%
Stock Indices in U.S. (relative to fair value):
S&P 500: -3.63
Dow Jones Industrial Average: -18
NASDAQ Composite: -1.46
Thought For The Day:
Most of us are just about as happy as we make up our minds to be. - Abraham Lincoln
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 Greece Situation
2. The State of Fed/ECB Policy
3. The State of the U.S. Economy
4. The State of the Oil Crash
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: 2060
- Key Near-Term Resistance Zone(s): 2100
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: Positive
- Breadth Thrust Indicator: Positive
- 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: Overbought
- 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 - A CONCERT Advisor
Be Sure To Check Out the NEW Website!
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.