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To be sure, this market has been all about oil recently. While there definitely have been other distractions, it has become quite clear that Wall Street's trading machines had joined the movements of oil and stock prices at the hip. And although one could argue that the dollar and bond yields are also part of the correlation trade that has been occurring day in and day out this year, the bottom line has been that when oil went down, stocks went down, and vice versa.

But on Wednesday afternoon, it looked as though someone had flipped the switch on the correlation trade. Stocks were suddenly moving higher late in the day while oil was holding to a pretty big dive (to the tune of -8%).

Apparently none other than the Oracle of Omaha himself had provided some upbeat words about the outlook for the good 'ol U.S. stock market.

Just like that, stocks appeared to decouple from oil.

Just like that, the S&P 500 looked like it had broken out of a long, consolidation pattern.

And just like that, the bulls appeared to be back and the bears had blown the best opportunity they had seen in a very long time.

Wait, What? Seriously?

But then it happened. With stocks at the high of the day, the S&P started to reverse. And while reversals in both directions of 5-10 points happen all the time in the stock market these days - and usually for no reason whatsoever - this reversal appeared to be different.

This bout of algo-induced selling wasn't the usual fare. No, this one had some teeth to it. This time the S&P plummeted 10 points in just 6 minutes. And after 11 minutes, the venerable blue chip index looked like it was falling off a cliff on the chart, diving nearly 15 points. And to anyone paying attention, it was clear that something was up.

Finding the culprit for the swan dive didn't take long. With less than 25 minutes left in Wednesday's trading session, the ECB had decided to announce that they were no longer going to accept Greece's debt as collateral at the bank. It looked like Mr. Draghi was looking to make a point.

Bam. Stocks forgot about Mr. Buffett and his upbeat view as the computers were trained on the headline. Remember, traders have been dealing with Greece for years now, and their computers knew exactly how to handle this type of headline. Sell. Sell. Sell.

To the humans watching the latest Greek drama unfold, the reaction was something along the lines of, "Wait, what? Seriously, we're going to worry about Greece AGAIN?"

The Fear Was...

For anyone that was in the game during the European debt crisis of 2010-2012, Wednesday's market tune had a familiar ring to it. Greek banks, which had already been experiencing serious outflows due to all the political chest thumping the new leaders have been doing, were now in deep doo-doo.

But the news that the ECB was suddenly joining the political arena and telling Greece's leaders what they could do with all of their fancy new plans to swap debt, meant that there were likely going to be out-and-out runs on Greece's banks. And as the European debt crisis play book spells out, this would undoubtedly lead to defaults, which, in turn, would lead to problems with all the European banks that had lent Greece money, which would lead to capital problems, which would lead to... well, you get the idea.

After the market closed, the fun and games continued. Before you could look up the proper spelling of the new Greek Prime Minister's last name, U.S. stock futures had fallen another 15 points and it looked like Wall Street was going to go into full-blown panic mode. Yes, again.

But a Funny Thing Happened on the Way to the Forum

However, we awake this morning not to death and destruction in Europe and in the U.S. futures market, but to modest pullbacks in the indices across the pond and to green arrows in the U.S. indices. Instead of traders freaking out about what might happen next in Europe, they appear to be putting back the S&P points that the late-day dive took away so quickly.

Of course, it doesn't hurt that oil is rising a bit in the early trade early. Remember, Wall Street traders DO like their correlation trades. And while Greece was definitely a distraction yesterday, it appears that things might be back to business as usual - as Greece may NOT be the word after all right now. But we shall see...

Turning to This Morning...

Greece continues to dominate the headlines this morning. However, cooler heads appear to have now prevailed as analysts suggest that the contagion effect from Greece's banks is limited. Remember that traders have had years to identify the potential fallout from a default in Greece. The other important story in the markets remains oil. After a fairly spirited dead-cat bounce in the three days prior, crude's rally was interrupted yesterday with an -8% pullback. According to traders, both moves may have been overdone and oil looks to be seeking an equilibrium point this morning. The key is the question of whether or not the crash in oil has now ended. And the assumption in the stock market appears to be if the decline in oil can subside, then stocks may be able to move higher. In other news, analysts expect China to continue so stimulate their economy and that the latest cut in the RRR represented the beginning of an easing phase. Here in the U.S. stock futures point to a modest gain at the open.

Pre-Game Indicators

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

Major Foreign Markets:
    Japan: -0.98%
    Hong Kong: +0.35%
    Shanghai: -1.17%
    London: -0.29%
    Germany: -0.12%
    France: -0.39%
    Italy: -0.71%
    Spain: -0.67%

Crude Oil Futures: +$0.97 to $49.42

Gold: +$0.10 at $1264.60

Dollar: lower against the yen, euro and pound

10-Year Bond Yield: Currently trading at 1.780%

Stock Indices in U.S. (relative to fair value):
    S&P 500: +9.39
    Dow Jones Industrial Average: +73
    NASDAQ Composite: +12.65

Thought For The Day:

You cannot push anyone up the ladder unless he is willing to climb. - Andrew Carnegie

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

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: Moderately Positive
(Chart below is S&P 500 daily over past 1 month)

Intermediate-Term Trend: Moderately 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: 1975
  • Key Near-Term Resistance Zone(s): 2060-90

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): Neutral
  • Price Thrust Indicator: Neutral
  • Volume Thrust Indicator: Neutral
  • Breadth Thrust Indicator: Neutral
  • Bull/Bear Volume Relationship: Neutral
  • Technical Health of 100 Industry Groups: Neutral

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: Moderately 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 - A CONCERT Advisor
Be Sure To Check Out the NEW Website!

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.