Traders Cutting To The Chase
The current Greek drama appears to be going largely according to script. Past crises related to Greece have taught traders to push stocks higher when optimism that the latest "deal" is going to get done and conversely, to hit the sell button early and often when it looks like there is no hope. And since this dance has been going on since 2010, the current action has a familiar ring to it.
However, there is one slight variation worth noting. This time around, traders appear to be cutting to the chase. Instead of spending each session hanging on every headline, comment, and/or rumor that comes out of the Eurozone or Athens, traders are basically betting on the outcome of the current negotiations.
So, the bottom line appears to be that despite the political posturing required by the new Syriza government, word that negotiations between Greece and the Eurogroup seem to be going well is reason for traders to put away their fear, cover their shorts, and hit the buy button. Because don't look know fans, but the major indices are making a run for the border here.
Exhibit A would be the weekly charts of the S&P Midcap 400 and the NASDAQ Composite.
S&P Midcap 400 - Weekly
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NASDAQ Comp - Weekly
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Both of these charts have clearly broken out to the upside. The question of the day then, is if the "Generals" in the Dow and S&P 500 will follow suit.
S&P 500 - Weekly
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Here's the Latest...
There were reports yesterday that caused traders to look beyond the political wrangling and assume that a deal will be struck at some point in the near term.
First there was the Bloomberg report stating that there were signs of a compromise emerging between the two sides. Citing sources, Bloomberg stated that both Greece and Germany are offering hints of compromise. The article noted that Germany does not appear to be insisting that all elements of Greece's current aid program continue - as long as the program is extended, that is. Bloomberg said that Germany appears willing to give some ground on budget surpluses and conditions surrounding the privatization push.
On the other side of the aisle, Greece appears prepared to commit to a primary budget surplus, just not at the current EU-demanded target. Bloomberg noted that there are also indications Athens may be also be willing to compromise on other issues such as forced privatizations.
The key appears to be that behind-the-scenes negotiations are indeed taking place - and the hope is that a breakthrough can be achieved by the next Eurogroup meeting scheduled for Monday.
Optimism that a compromise can be reached continues this morning. Reports indicate that Greek Prime Minister Tsipras has agreed to allow Greek government officials to negotiate technical details before Monday’s next Eurogroup meeting. In addition, a Greek government spokesman said publicly that Athens will make every effort to reach agreement on Monday.
Dow Jones also cited a senior EU official who said Friday that Greece’s current bailout program could be replaced with a new one. This is important as the language being used here could provide political cover for Syriza, which has demanded that the current plan not be continued.
So, while there is a LOT of time left on the clock between now and Monday afternoon, the current view is that a deal will get done. As such, the markets appear to be breathing a sigh of relief. However, the real test will come when one side decides to dig in and say, "No deal." Stay tuned.
Turning to This Morning...
Most of the primary issues that traders have been fretting about over the past two months remain in place this morning. However, the mood appears to have shifted toward the optimistic side on almost all counts. For example, the current view is that a deal will get done in the Eurozone and that the ceasefire negotiated between Russia and Ukraine will stick this time. In addition, better economic data in Germany (GDP surprised to the upside) has combined to cause a nice rally in Europe this morning. And with crude prices also higher, it looks like Wall Street is set for a modestly higher open.
Here are the Pre-Market indicators we review each morning before the opening bell...
Major Foreign Markets:
Hong Kong: +1.07%
Crude Oil Futures: +$1.11 to $52.32
Gold: +$4.00 at $1224.70
Dollar: higher against the yen, euro and pound
10-Year Bond Yield: Currently trading at 2.017%
Stock Indices in U.S. (relative to fair value):
S&P 500: +3.25
Dow Jones Industrial Average: +36
NASDAQ Composite: +10.25
Thought For The Day:
Time you enjoy wasting, was not wasted. -John Lennon
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 Latest Greek Drama
2. The State of the Oil Crash
3. The State of the U.S. Economy
4. The State of Fed/ECB Policy
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: 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): 2090-95
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: 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: 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
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.
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