Dave Moenning

Headline Risk Leads To Sloppiness, But So Far, So Good

Good morning. We’ve got a new week on tap so let’s get started with a review of my key market models/indicators and see where we stand. To review, the primary goal of this exercise is to try and remove any subjective notions about what “should” be happening in the market in an attempt to stay in line with what “is” happening in the markets. So, let’s get started.

The State of the Trend

We start our review each week with a look at the “state of the trend.” These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.


View Trend Indicator Board Online

Executive Summary:

  • The short-term Trend Model remains neutral this week. 
  • The short-term Channel Breakout System produced a sell signal by a very slim margin last week. A close above 2597 would turn this indicator green next week. 
  • Despite the recent waffling, the intermediate-term Trend Model is in good shape. 
  • The intermediate-term Channel Breakout System was unfazed by the recent weakness and remains on a buy signal. A close below 2544 would be a cause for concern. 
  • The long-term Trend Model is also solidly positive. 
  • After a protracted period of projected weakness, the Cycle Composite begins to point higher here. 
  • The Trading Mode models continue to point to a trending market environment.
  • So far at least, the current sloppy action appears to be a “pause that refreshes.”

The State of Internal Momentum

Next up are the momentum indicators, which are designed to tell us whether there is any “oomph” behind the current trend.


View Momentum Indicator Board Online

Executive Summary:

  • After spending some time in negative territory, the short-term Trend and Breadth Confirm Model flipped back to positive late last week. However, this indicator is very sensitive and could easily change. 
  • Our intermediate-term Trend and Breadth Confirm Model has done a good job calling the overall environment this year and remains green this week. 
  • The Industry Health Model continues to struggle in the neutral zone. This is an indication that market breadth is not as strong as it normally is during bull market rallies. 
  • The short-term Volume Relationship model slipped to negative last week as down volume has outpaced up volume over the last month. 
  • However, the intermediate-term Volume Relationship remains on a buy signal. 
  • The reading of the Price Thrust Indicator took a bit hit last week and is now solidly negative. This tells us there is little upside momentum present here. 
  • The good news on the momentum front is both the Volume and Breadth Thrust Indicators remain in the neutral zone. Thus, I conclude that while upside momentum has slipped, there isn’t much in the way of downside momentum at this time.

The State of the “Trade”

We also focus each week on the “early warning” board, which is designed to indicate when traders might start to “go the other way” — for a trade.


View Early Warning Indicator Board Online

Executive Summary:

  • From a near-term perspective, stocks are neither overbought nor oversold. 
  • From an intermediate-term view, stocks remain in overbought territory. However, the extreme overbought condition has largely been worked off recently. 
  • The Mean Reversion Model continues to suggest that neither team has a strong edge. 
  • The short-term VIX indicator gave a buy signal last week. 
  • Our longer-term VIX Indicator confirmed with a buy signal of its own last week. 
  • From a short-term perspective, market sentiment is now dead neutral. 
  • The intermediate-term Sentiment Model slipped back into negative territory last week. 
  • Longer-term Sentiment readings point to a great deal of complacency in the market.

The State of the Macro Picture

Now let’s move on to the market’s “external factors” – the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.


View External Factors Indicator Board Online

Executive Summary:

  • There was no change in Absolute Monetary conditions last week – the indicator remains neutral. 
  • However, the Relative Monetary Model popped back up into the green zone last week. 
  • Our Economic Model continues to suggest a strong economic growth environment. 
  • The Inflation Model also perked up last week, suggesting a mild disinflationary environment is underway – this has historically been positive for stocks. 
  • The Absolute Valuation Model has improved ever-so slightly over the past 3 quarters but remains at very high levels. This suggests that risk remains high. 
  • Our Relative Valuation Model remains neutral but contineus to move toward the overvalued zone.

The State of the Big-Picture Market Models

Finally, let’s review my favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.


View My Favorite Market Models Online

Executive Summary:

  • The Leading Indicators model, which was our best performing timing model during the last cycle, remains on a buy signal. However, the model reading has slipped to neutral in the past couple weeks. This remains something to watch. 
  • We have recently upgraded our “State of the tape” model to include an additional 5 indicator readings. The current reading of the new model is positive. However, the model is starting to wobble at bit from very high readings. 
  • The Risk/Reward model also remains on a buy signal, but continues to struggle with the state of the sentiment and valuation indicators. 
  • The newly expanded External Factors model includes a total of 10 indicators ranging from earnings, yields, sentiment, monetary, economic, and volatility. The current model reading is high neutral.

My Takeaway…

After ignoring the traditional seasonal weakness during the Sept – Oct period by marching to a series of new highs, it is not surprising to see some sloppy action in the stock market here. In my opinion, the action is largely tied to the headline risk associated with tax reform. The good news is that, so far at least, there hasn’t been any real damage done to the market from a technical standpoint or to the internal indicators. So, with plenty of time left on the tax reform deadline clock, we should probably expect more of the same in the coming weeks.

Sample Risk Exposure System

Below is an EXAMPLE of how some of above indicators might be used in order to determine exposure to market risk. The approach used here is a “Model of Models” comprised of 10 independent Models. Each model included gives separate buy and sell signals, which affects a percentage of the model’s overall exposure to the market.

Trend models control a total 40% of our exposure. The 3 Momentum Models and 3 Environment Models each control 10% of the portfolio’s exposure to market risk. The model’s “Exposure to Market Risk” reading (at the bottom of the Model) acts as an EXAMPLE of a longer-term guide to exposure to market risk.

In looking at the “bottom line” of this model, my take is that readings over 75% are “positive,” readings between 50% and 75% are “moderately positive,” and readings below 50% should be viewed as a warning that all is not right with the indicator world.


View Sample Exposure Model Online

The model above is for illustrative and informational purposes only and does not in any way represent any investment recommendation. The model is merely a sample of how indicators can be grouped to create a guide to market exposure based on the inputs from multiple indicators/models.

Thought For The Day:

You’ve got to go out on a limb sometimes because that’s where the fruit is. -Will Rogers

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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

Indicators Explained

Short-Term Trend-and-Breadth Signal 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 NDR’s 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.

Channel Breakout System Explained: The short-term and intermediate-term Channel Breakout Systems are modified versions of the Donchian Channel indicator. According to Wikipedia, “The Donchian channel is an indicator used in market trading developed by Richard Donchian. It is formed by taking the highest high and the lowest low of the last n periods. The area between the high and the low is the channel for the period chosen.”

Intermediate-Term Trend-and-Breadth Signal Explained: This indicator incorporates NDR’s All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 45-day smoothing and the All-Cap Equal Weighted Equity Series is above its 45-day smoothing, the equity index has gained at a rate of +17.6% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +6.5% per year. And when both are below, the equity index has lost -1.3% per year.

Industry Health Model Explained: Designed to provide a reading on the technical health of the overall market, Big Mo Tape 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.

Cycle Composite Projections: The cycle composite combines the 1-year Seasonal, 4-year Presidential, and 10-year Decennial cycles. The indicator reading shown uses the cycle projection for the upcoming week.

Trading Mode Indicator: This indicator attempts to identify whether the current trading environment is “trending” or “mean reverting.” The indicator takes the composite reading of the Efficiency Ratio, the Average Correlation Coefficient, and Trend Strength models.

Volume Relationship Models: These models review the relationship between “supply” and “demand” volume over the short- and intermediate-term time frames.

Price Thrust Model 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 Model 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 Model 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.

Short-Term Overbought/sold Indicator: This indicator is the current reading of the 14,1,3 stochastic oscillator. When the oscillator is above 80 and the %K is above the %D, the indicator gives an overbought reading. Conversely, when the oscillator is below 20 and %K is below its %D, the indicator is oversold.

Intermediate-Term Overbought/sold Indicator: This indicator is a 40-day RSI reading. When above 57.5, the indicator is considered overbought and wnen below 45 it is oversold.

Mean Reversion Model: This is a diffusion model consisting of five indicators that can produce buy and sell signals based on overbought/sold conditions.

VIX Indicator: This indicators looks at the current reading of the VIX relative to standard deviation bands. When the indicator reaches an extreme reading in either direction, it is an indication that a market trend could reverse in the near-term.

Short-Term Sentiment Indicator: This is a model-of-models composed of 18 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a short-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Intermediate-Term Sentiment Indicator: This is a model-of-models composed of 7 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a intrmediate-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Long-Term Sentiment Indicator: This is a model-of-models composed of 6 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a long-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Absolute Monetary Model Explained: The popular cliche, “Don’t fight the Fed” is really a testament to the profound impact that interest rates and Fed policy have on the market. It is a proven fact that monetary conditions are one of the most powerful influences on the direction of stock prices. The Absolute Monetary Model looks at the current level of interest rates relative to historical levels and Fed policy.

Relative Monetary Model Explained: The “relative” monetary model looks at monetary indicators relative to recent levels as well as rates of change and Fed Policy.

Economic Model Explained: During the middle of bull and bear markets, understanding the overall health of the economy and how it impacts the stock market is one of the few truly logical aspects of the stock market. When our Economic model sports a “positive” reading, history (beginning in 1965) shows that stocks enjoy returns in excess of 21% per year. Yet, when the model’s reading falls into the “negative” zone, the S&P has lost nearly -25% per year. However, it is vital to understand that there are times when good economic news is actually bad for stocks and vice versa. Thus, the Economic model can help investors stay in tune with where we are in the overall economic cycle.

Inflation Model Explained: They say that “the tape tells all.” However, one of the best “big picture” indicators of what the market is expected to do next is inflation. Simply put, since 1962, when the model indicates that inflationary pressures are strong, stocks have lost ground. Yet, when inflationary pressures are low, the S&P 500 has gained ground at a rate in excess of 13%. The bottom line is inflation is one of the primary drivers of stock market returns.

Valuation Model Explained: If you want to get analysts really riled up, you need only to begin a discussion of market valuation. While the question of whether stocks are overvalued or undervalued appears to be a simple one, the subject is actually extremely complex. To simplify the subject dramatically, investors must first determine if they should focus on relative valuation (which include the current level of interest rates) or absolute valuation measures (the more traditional readings of Price/Earnings, Price/Dividend, and Price/Book Value). We believe that it is important to recognize that environments change. And as such, the market’s focus and corresponding view of valuations are likely to change as well. Thus, we depend on our Valuation Models to help us keep our eye on the ball.

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

Is That Weakness Creeping In?

Good morning. We’ve got a new week on tap so let’s get started with a review of my key market models/indicators and see where we stand. To review, the primary goal of this exercise is to try and remove any subjective notions about what “should” be happening in the market in an attempt to stay in line with what “is” happening in the markets. So, let’s get started.

The State of the Trend

We start our review each week with a look at the “state of the trend.” These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.


View Trend Indicator Board Online

Executive Summary:

  • Although the market has only see two down days, the short-term Trend Model has slipped to neutral. 
  • The short-term Channel Breakout System remains positive as long as the S&P 500 stays above 2565 this week. 
  • Although the bears are coming out of the woodwork to proclaim the end is near, the intermediate-term Trend Model is still in good shape. 
  • The intermediate-term Channel Breakout System remains positive above 2544 this week. 
  • The long-term Trend Model also remains solidly positive at this time. 
  • The Cycle Composite points lower again this week before starting to turn higher. 
  • The Trading Mode models suggest that this remains a trending environment.

The State of Internal Momentum

Next up are the momentum indicators, which are designed to tell us whether there is any “oomph” behind the current trend.


View Momentum Indicator Board Online

Executive Summary:

  • The short-term Trend and Breadth Confirm Model slipped to negative last week as breadth had been weakening prior to the blue chip indices starting to falter. 
  • However, the intermediate-term Trend and Breadth Confirm Model continues positive. 
  • The Industry Health Model didn’t move much last week and remains neutral. 
  • The short-term Volume Relationship has also fallen to neutral. This is another sign that market’s internal action has not been as strong as the blue chip indices have indicated. 
  • The intermediate-term Volume Relationship is in good shape. 
  • The Price Thrust Indicator fell into the negative zone last week. 
  • The Volume Thrust Indicator actually improved to neutral last week. 
  • The Breadth Thrust Indicator also slipped to negative last week.
  • Although the S&P and DJIA remain very close to all-time highs, the underlying momentum indicators have weakened considerably.

The State of the “Trade”

We also focus each week on the “early warning” board, which is designed to indicate when traders might start to “go the other way” — for a trade.


View Early Warning Indicator Board Online

Executive Summary:

  • From a near-term perspective, stocks remain overbought. 
  • From an intermediate-term view, stocks remain very overbought. 
  • There hasn’t been enough volatility recently to trigger moves in our Mean Reversion Model. So, the model is stuck in neutral. 
  • With a modest uptick seen in volatility, the short-term VIX indicator is now in a position to trigger a buy signal should the VIX decline in the near-term. 
  • Our longer-term VIX Indicator has issued a sell signal. 
  • From a short-term perspective, the market sentiment model has reversed and is now neutral. 
  • The intermediate-term Sentiment Model has also reversed course and moved into the neutral zone – albeit by a slim margin. 
  • Longer-term Sentiment readings remain very negative.

The State of the Macro Picture

Now let’s move on to the market’s “external factors” – the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.


View External Factors Indicator Board Online

Executive Summary:

  • Absolute Monetary conditions remain neutral – but at the lowest readings of the year. 
  • The Relative Monetary Model also remains neutral. 
  • Our Economic Model continues to suggest strong economic growth. 
  • The Inflation Model continues to fall within the neutral zone and is quickly approaching the “low inflation pressures” zone. 
  • The Absolute Valuation Model has seen some modest improvement over the past two quarters but the valuations remains elevated. 
  • Our Relative Valuation Model has fallen a bit recently. However, the overall reading remains in the neutral zone.

The State of the Big-Picture Market Models

Finally, let’s review my favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.


View My Favorite Market Models Online

Executive Summary:

  • The Leading Indicators model, which was our best performing timing model during the last cycle, remains on a buy signal but the model reading itself slipped into the neutral zone again last week. 
  • We have recently upgraded our “State of the tape” model to include an additional 5 indicator readings. The current reading of the new model is positive. 
  • The Risk/Reward model continues to struggle with the monetary and sentiment situation. As such, the model reading is stuck in neutral. 
  • The new, expanded External Factors model includes a total of 10 indicators ranging from earnings, yields, sentiment, monetary, economic, and volatility. The current model reading is high neutral.

My Takeaway…

If one focused their attention on the action of the Russell 2000 small cap index, the weakness seen in many of our models would make sense. However, with the S&P 500 just a couple days from its most recent highs, the divergence between the momentum boards and the price action is surprising to see. The bottom line appears to be that the underlying market indicators are not as strong as the blue-chip indices might suggest. And with stocks having avoided any kind of sell-off for months now, the bears contend that it is time to pay attention to the current price/momentum divergences. Time will tell on this score. But I will say that the dip that many investors have been hoping for may be underway here.

Publishing Note: I am traveling the rest of the week and have some very early commitments so I will publish reports as my schedule permits.

Sample Risk Exposure System

Below is an EXAMPLE of how some of above indicators might be used in order to determine exposure to market risk. The approach used here is a “Model of Models” comprised of 10 independent Models. Each model included gives separate buy and sell signals, which affects a percentage of the model’s overall exposure to the market.

Trend models control a total 40% of our exposure. The 3 Momentum Models and 3 Environment Models each control 10% of the portfolio’s exposure to market risk. The model’s “Exposure to Market Risk” reading (at the bottom of the Model) acts as an EXAMPLE of a longer-term guide to exposure to market risk.

In looking at the “bottom line” of this model, my take is that readings over 75% are “positive,” readings between 50% and 75% are “moderately positive,” and readings below 50% should be viewed as a warning that all is not right with the indicator world.


View Sample Exposure Model Online

The model above is for illustrative and informational purposes only and does not in any way represent any investment recommendation. The model is merely a sample of how indicators can be grouped to create a guide to market exposure based on the inputs from multiple indicators/models.

Thought For The Day:

Life is the sum of all your choices. -Albert Camus

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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

Indicators Explained

Short-Term Trend-and-Breadth Signal 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 NDR’s 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.

Channel Breakout System Explained: The short-term and intermediate-term Channel Breakout Systems are modified versions of the Donchian Channel indicator. According to Wikipedia, “The Donchian channel is an indicator used in market trading developed by Richard Donchian. It is formed by taking the highest high and the lowest low of the last n periods. The area between the high and the low is the channel for the period chosen.”

Intermediate-Term Trend-and-Breadth Signal Explained: This indicator incorporates NDR’s All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 45-day smoothing and the All-Cap Equal Weighted Equity Series is above its 45-day smoothing, the equity index has gained at a rate of +17.6% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +6.5% per year. And when both are below, the equity index has lost -1.3% per year.

Industry Health Model Explained: Designed to provide a reading on the technical health of the overall market, Big Mo Tape 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.

Cycle Composite Projections: The cycle composite combines the 1-year Seasonal, 4-year Presidential, and 10-year Decennial cycles. The indicator reading shown uses the cycle projection for the upcoming week.

Trading Mode Indicator: This indicator attempts to identify whether the current trading environment is “trending” or “mean reverting.” The indicator takes the composite reading of the Efficiency Ratio, the Average Correlation Coefficient, and Trend Strength models.

Volume Relationship Models: These models review the relationship between “supply” and “demand” volume over the short- and intermediate-term time frames.

Price Thrust Model 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 Model 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 Model 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.

Short-Term Overbought/sold Indicator: This indicator is the current reading of the 14,1,3 stochastic oscillator. When the oscillator is above 80 and the %K is above the %D, the indicator gives an overbought reading. Conversely, when the oscillator is below 20 and %K is below its %D, the indicator is oversold.

Intermediate-Term Overbought/sold Indicator: This indicator is a 40-day RSI reading. When above 57.5, the indicator is considered overbought and wnen below 45 it is oversold.

Mean Reversion Model: This is a diffusion model consisting of five indicators that can produce buy and sell signals based on overbought/sold conditions.

VIX Indicator: This indicators looks at the current reading of the VIX relative to standard deviation bands. When the indicator reaches an extreme reading in either direction, it is an indication that a market trend could reverse in the near-term.

Short-Term Sentiment Indicator: This is a model-of-models composed of 18 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a short-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Intermediate-Term Sentiment Indicator: This is a model-of-models composed of 7 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a intrmediate-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Long-Term Sentiment Indicator: This is a model-of-models composed of 6 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a long-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Absolute Monetary Model Explained: The popular cliche, “Don’t fight the Fed” is really a testament to the profound impact that interest rates and Fed policy have on the market. It is a proven fact that monetary conditions are one of the most powerful influences on the direction of stock prices. The Absolute Monetary Model looks at the current level of interest rates relative to historical levels and Fed policy.

Relative Monetary Model Explained: The “relative” monetary model looks at monetary indicators relative to recent levels as well as rates of change and Fed Policy.

Economic Model Explained: During the middle of bull and bear markets, understanding the overall health of the economy and how it impacts the stock market is one of the few truly logical aspects of the stock market. When our Economic model sports a “positive” reading, history (beginning in 1965) shows that stocks enjoy returns in excess of 21% per year. Yet, when the model’s reading falls into the “negative” zone, the S&P has lost nearly -25% per year. However, it is vital to understand that there are times when good economic news is actually bad for stocks and vice versa. Thus, the Economic model can help investors stay in tune with where we are in the overall economic cycle.

Inflation Model Explained: They say that “the tape tells all.” However, one of the best “big picture” indicators of what the market is expected to do next is inflation. Simply put, since 1962, when the model indicates that inflationary pressures are strong, stocks have lost ground. Yet, when inflationary pressures are low, the S&P 500 has gained ground at a rate in excess of 13%. The bottom line is inflation is one of the primary drivers of stock market returns.

Valuation Model Explained: If you want to get analysts really riled up, you need only to begin a discussion of market valuation. While the question of whether stocks are overvalued or undervalued appears to be a simple one, the subject is actually extremely complex. To simplify the subject dramatically, investors must first determine if they should focus on relative valuation (which include the current level of interest rates) or absolute valuation measures (the more traditional readings of Price/Earnings, Price/Dividend, and Price/Book Value). We believe that it is important to recognize that environments change. And as such, the market’s focus and corresponding view of valuations are likely to change as well. Thus, we depend on our Valuation Models to help us keep our eye on the ball.

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

Bulls Starting To Feel The Love

One of the primary arguments coming out of the bear camp these days is the stock market game is just too easy right now. Our furry friends suggest that when things become too one-sided for an extended length of time (such as this being the longest period in history without a 3% correction), the tide can quickly turn.

The focal point to this argument has to do with investor sentiment. And based on the indicators I review on a regular basis, sentiment has indeed reached bullish extremes. For example, the reading of one crowd sentiment model I follow currently stands at 73.5. Although the model reading has been near this level twice already this year, it is important to note that (a) this week’s reading is the highest of the year and (b) in the last fifteen years, there have only been two readings that were higher.

Another example that this market is beginning to be “loved” instead of “hated” is the level of margin debt investors hold. According to the Wall Street Journal, investors held $559.6 billion in margin debt at the end of September. This level is a record high (the 7th such record set this year) and is up 14% from the end of 2016. As the Journal points out, higher levels of margin debt can be seen as a measure of confidence in the current market.

There are lots of other indicators to confirm the view that sentiment toward stocks has bee moving up strongly.  For example, in the latest survey of consumer sentiment done by the University of Michigan, the reading for the “outlook for the stock market one year from now,” hit an all-time.

Next up is the confidence level of newsletter writers. While I can certainly argue that the newsletter game has experienced a meaningful decline over that last decade, analyzing the spread between bullish and bearish writers still has value in the sentiment department. As of last Wednesday, Investors Intelligence reports that 64% of newsletter writers were currently bullish while just 14% were bearish.

The folks at Investors Intelligence tell us that sentiment risk become “elevated” when the spread between the number of bullish and bearish newsletter writers exceeds 40%. Point number one here is that this spread has now exceeded 40% for six straight weeks. Point number two is that last week’s spread between bulls and bears was the highest in more than 30 years.

Then there is the subject of stock market volatility – as in the lack thereof. On that score, according to The Wall Street Journal’s Market Data Group, it has been 45 days since the S&P 500 last had so much as a 0.5% decline, which is the longest such streak since 1968.

As we’ve noted previously, the current low volatility environment, while not unprecedented, is fairly unusual. If memory serves, volatility has only been this low in the late-1990’s and the mid-1960’s.

Consumer sentiment towards the economy has also been improving steadily this year. The reason I bring this up is that consumer sentiment tends to be correlated to the movement in the stock market. In short, when stocks go up, consumers become more comfortable with their financial positions and vice versa.

So, it is interesting to note that the University of Michigan’s gauge of consumer sentiment climbed to its highest level since 2004 last month and a Conference Board indicator was at its highest reading since 2000 in October.

I could go on, but the big point this morning is that investors appear to be in their happy places right now when it comes to the stock market.

Over the years, I’ve learned that when investor sentiment reaches extreme levels, it means they are usually pretty well invested. You see, the public doesn’t invest when things are scary (and prices are low). No, they tend to wait until things “feel good” before putting their money to work. So, by the time extreme readings show up in the sentiment models, most of the money has already been invested.

The key is that if investors are happy (they are) and mutual fund cash is low (it is), then a great deal of buying power has already been used up. This means that the market can experience a vacuum of demand if things turn south. As such, I can argue that risk becomes elevated alongside extremely positive sentiment readings.

As the saying goes, the public tends to be wrong at both ends of a move but right during the middle of the trend. So, with folks feeling pretty good right about now, it might be a good idea to recognize that an uptick in volatility could begin at any time and for just about any reason.

But, with the fundamental models still in good shape, the game plan remains the same for now – buy the dips. Assuming there are any dips to buy, that is.

Thought For The Day:

Judge a man by his questions rather than by his answers. -Voltaire

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 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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

Bulls Showing Signs of Fatigue

Good morning. We’ve got a new week on tap so let’s get started with a review of my key market models/indicators and see where we stand. To review, the primary goal of this exercise is to try and remove any subjective notions about what “should” be happening in the market in an attempt to stay in line with what “is” happening in the markets. So, let’s get started.

The State of the Trend

We start our review each week with a look at the “state of the trend.” These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.


View Trend Indicator Board Online

Executive Summary:

  • Hate to sound like a broken record here, but with the S&P 500 closing at yet another all-time high on Friday, it is not surprising to see all of our Trend Models positive this morning.
  • Both the short- and intermediate-term Channel Breakout System indicators are positive again this week.
  • The long-term Trend Model continues to sport a bright shade of green.
  • Although the Cycle Composite has been out of sync with the market moves since mid-August, the composite points lower for the next two weeks.
  • We probably don’t need anything but a chart to tell us this, but all three Trading Mode models agree that this remains a trending environment.

The State of Internal Momentum

Next up are the momentum indicators, which are designed to tell us whether there is any “oomph” behind the current trend.


View Momentum Indicator Board Online

Executive Summary:

  • The short-term Trend and Breadth Confirm Model slipped to neutral last week. This should be viewed as a warning sign that momentum is waning on the upside.
  • Our intermediate-term Trend and Breadth Confirm Model, which has done a very good job staying with the overall trend, remains positive.
  • The Industry Health Model remains at the high end of Neutral. However, we should note that this model has been unable to move into the outright positive zone during this cycle. As such, I’m not going to worry about the status of this indicator.
  • The reading of our short-term Volume Relationship model is positive, however, the trend of up volume is heading the wrong way at this time.
  • A similar story is being told by the intermediate-term Volume Relationship model. The model itself is positive, but the trend of demand volume has now turned down from a short-term perspective.
  • The Price Thrust Indicator remains on a buy signal but the indicator reading has slipped to neutral. Since the indicator is an oscillator, this simply means that the most recent buy signal is becoming “stale.”
  • Not surprisingly, the Volume Thrust Indicator remains negative.
  • The Breadth Thrust Indicator is in the neutral zone to start the week.
  • There has been a subtle shift in the status of the momentum board – and I view this as a potential yellow flag that the bulls may be tiring from their big run this year.

The State of the “Trade”

We also focus each week on the “early warning” board, which is designed to indicate when traders might start to “go the other way” — for a trade.


View Early Warning Indicator Board Online

Executive Summary:

  • From a near-term perspective, stocks are once again overbought. But, the fact that stocks have not been able to become oversold since mid-August should be viewed as a sign of strength.
  • From an intermediate-term view, stocks remain VERY overbought. But again, this appears to be a “good overbought” condition.
  • The Mean Reversion Model starts the week in the neutral zone but is moving closer to a new signal.
  • The short-term VIX indicator is very close to issuing a fresh sell signal – for a trade.
  • Our longer-term VIX Indicator, which remains on a very timely buy signal, has reversed and is now in position to issue a sell. But not yet.
  • From a short-term perspective, the market sentiment model has flip-flopped between negative and neutral of late. This week, the model is back in the red – by a slim margin.
  • The intermediate-term Sentiment Model has not wavered and remains negative.
  • Ditto for the longer-term Sentiment reading – solidly red.
  • The key takeaway here is the “early warning” board is starting to look like the 3rd grader in the back of the room that knows the answer and desperately wants to be called on.

The State of the Macro Picture

Now let’s move on to the market’s “external factors” – the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.


View External Factors Indicator Board Online

Executive Summary:

  • Absolute Monetary conditions continue to weaken as our model declined to the lowest level of the year.
  • While in better shape than the absolute model, the Relative Monetary Model is also neutral.
  • Our new Economic Model, which now indicates the status of economic growth continues to suggest the economy is doing just fine, thank you.
  • The Inflation Model remains stuck in the neutral zone and continues to suggest that inflation pressures are miniscule at the present time.
  • The Absolute Valuation Model hasn’t budged and remains solidly red.
  • Our Relative Valuation Model remains neutral but is heading in the wrong direction here.

The State of the Big-Picture Market Models

Finally, let’s review my favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.


View My Favorite Market Models Online

Executive Summary:

  • The Leading Indicators model, which was our best performing timing model during the last cycle, has pulled back a bit recently but remains positive.
  • We have recently upgraded our “State of the tape” model to include an additional 5 indicator readings. The current reading of the new model is positive at this time with a reading of 100%.
  • The Risk/Reward model remains on a buy signal but slipped into the lower reaches of the neutral zone last week. This is likely due to the weakness seen in the monetary and sentiment areas.
  • The new, expanded External Factors model includes a total of 10 indicators ranging from earnings, yields, sentiment, monetary, economic, and volatility. The current model reading is high neutral.

My Takeaway…

The trick to this game is to be able to stay in tune with the market’s major cycles. And that is what our weekly indicator review is all about. So, while there are indeed some things to fret about here such as waning momentum, an overbought condition, extreme complacency, and weakness in the monetary models, the bottom line is this remains a bull market until proven otherwise. My take on the “yea buts” that are cropping up on the indicator boards is that the market is overdue for a pullback that lasts more than a day or two. And with the issue of tax reform representing headline risk, I would not at all be surprised to see some volatility return before year-end. But then again, I’ve been saying this for a while now! Therefore, the game plan would appear to be, buy the dips – any dips.

Publishing Note: I am traveling the middle of the week and have some very early commitments so I will publish reports as my schedule permits.

Sample Risk Exposure System

Below is an EXAMPLE of how some of above indicators might be used in order to determine exposure to market risk. The approach used here is a “Model of Models” comprised of 10 independent Models. Each model included gives separate buy and sell signals, which affects a percentage of the model’s overall exposure to the market.

Trend models control a total 40% of our exposure. The 3 Momentum Models and 3 Environment Models each control 10% of the portfolio’s exposure to market risk. The model’s “Exposure to Market Risk” reading (at the bottom of the Model) acts as an EXAMPLE of a longer-term guide to exposure to market risk.

In looking at the “bottom line” of this model, my take is that readings over 75% are “positive,” readings between 50% and 75% are “moderately positive,” and readings below 50% should be viewed as a warning that all is not right with the indicator world.


View Sample Exposure Model Online

The model above is for illustrative and informational purposes only and does not in any way represent any investment recommendation. The model is merely a sample of how indicators can be grouped to create a guide to market exposure based on the inputs from multiple indicators/models.

Thought For The Day:

To thine own self be true. -William Shakespeare

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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

Indicators Explained

Short-Term Trend-and-Breadth Signal 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 NDR’s 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.

Channel Breakout System Explained: The short-term and intermediate-term Channel Breakout Systems are modified versions of the Donchian Channel indicator. According to Wikipedia, “The Donchian channel is an indicator used in market trading developed by Richard Donchian. It is formed by taking the highest high and the lowest low of the last n periods. The area between the high and the low is the channel for the period chosen.”

Intermediate-Term Trend-and-Breadth Signal Explained: This indicator incorporates NDR’s All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 45-day smoothing and the All-Cap Equal Weighted Equity Series is above its 45-day smoothing, the equity index has gained at a rate of +17.6% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +6.5% per year. And when both are below, the equity index has lost -1.3% per year.

Industry Health Model Explained: Designed to provide a reading on the technical health of the overall market, Big Mo Tape 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.

Cycle Composite Projections: The cycle composite combines the 1-year Seasonal, 4-year Presidential, and 10-year Decennial cycles. The indicator reading shown uses the cycle projection for the upcoming week.

Trading Mode Indicator: This indicator attempts to identify whether the current trading environment is “trending” or “mean reverting.” The indicator takes the composite reading of the Efficiency Ratio, the Average Correlation Coefficient, and Trend Strength models.

Volume Relationship Models: These models review the relationship between “supply” and “demand” volume over the short- and intermediate-term time frames.

Price Thrust Model 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 Model 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 Model 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.

Short-Term Overbought/sold Indicator: This indicator is the current reading of the 14,1,3 stochastic oscillator. When the oscillator is above 80 and the %K is above the %D, the indicator gives an overbought reading. Conversely, when the oscillator is below 20 and %K is below its %D, the indicator is oversold.

Intermediate-Term Overbought/sold Indicator: This indicator is a 40-day RSI reading. When above 57.5, the indicator is considered overbought and wnen below 45 it is oversold.

Mean Reversion Model: This is a diffusion model consisting of five indicators that can produce buy and sell signals based on overbought/sold conditions.

VIX Indicator: This indicators looks at the current reading of the VIX relative to standard deviation bands. When the indicator reaches an extreme reading in either direction, it is an indication that a market trend could reverse in the near-term.

Short-Term Sentiment Indicator: This is a model-of-models composed of 18 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a short-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Intermediate-Term Sentiment Indicator: This is a model-of-models composed of 7 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a intrmediate-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Long-Term Sentiment Indicator: This is a model-of-models composed of 6 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a long-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Absolute Monetary Model Explained: The popular cliche, “Don’t fight the Fed” is really a testament to the profound impact that interest rates and Fed policy have on the market. It is a proven fact that monetary conditions are one of the most powerful influences on the direction of stock prices. The Absolute Monetary Model looks at the current level of interest rates relative to historical levels and Fed policy.

Relative Monetary Model Explained: The “relative” monetary model looks at monetary indicators relative to recent levels as well as rates of change and Fed Policy.

Economic Model Explained: During the middle of bull and bear markets, understanding the overall health of the economy and how it impacts the stock market is one of the few truly logical aspects of the stock market. When our Economic model sports a “positive” reading, history (beginning in 1965) shows that stocks enjoy returns in excess of 21% per year. Yet, when the model’s reading falls into the “negative” zone, the S&P has lost nearly -25% per year. However, it is vital to understand that there are times when good economic news is actually bad for stocks and vice versa. Thus, the Economic model can help investors stay in tune with where we are in the overall economic cycle.

Inflation Model Explained: They say that “the tape tells all.” However, one of the best “big picture” indicators of what the market is expected to do next is inflation. Simply put, since 1962, when the model indicates that inflationary pressures are strong, stocks have lost ground. Yet, when inflationary pressures are low, the S&P 500 has gained ground at a rate in excess of 13%. The bottom line is inflation is one of the primary drivers of stock market returns.

Valuation Model Explained: If you want to get analysts really riled up, you need only to begin a discussion of market valuation. While the question of whether stocks are overvalued or undervalued appears to be a simple one, the subject is actually extremely complex. To simplify the subject dramatically, investors must first determine if they should focus on relative valuation (which include the current level of interest rates) or absolute valuation measures (the more traditional readings of Price/Earnings, Price/Dividend, and Price/Book Value). We believe that it is important to recognize that environments change. And as such, the market’s focus and corresponding view of valuations are likely to change as well. Thus, we depend on our Valuation Models to help us keep our eye on the ball.

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

Quick Take: Jobs, Powell, Venezuela and Apple

It’s Jobs Friday, so let’s run down the numbers to start the day…

The Bureau of Labor Statistics reported that Nonfarm Payrolls, which is one of the most closely followed gauges regarding the state of the economy, rebounded sharply in October as the economy added 261,000 new jobs during the month.

However, the number of new jobs was well below the consensus estimates for an increase of 310K but was also well above September’s upwardly revised job growth of 18K.

The revisions to August (from 169,000 to 208,000) and September (-33,000 to 18,000) produced an additional 90,000 new jobs than had been previously reported.

The nation’s Unemployment Rate dipped to 4.1% in October which was a tenth below expectations. The current Unemployment Rate is the lowest seen in seventeen years.

According to MarketWatch, “The last time it was this easy to find a job was in the waning days of Bill Clinton’s presidency.”

However, the key to this report is that fact that the data is still being impacted by the hurricanes Harvey and Irma. If one takes September and October together you get an average of 139,000 new jobs created over the period, which, on the surface represents a significant dip in the monthly average for job creation.

All in all, this was a decent report and is unlikely to have any impact on Yellen’s plans to raise rates next month. Yet, many analysts suggest that the last two months data should be taken with a grain of salt.

In other news, Fed Governor Jerome Powell is slated replace Janet Yellen as Fed Chair (however, he must be confirmed by Congress first), the GOP is scurrying to get their tax plan put together, and Venezuela is planning to “restructure” its debt (according to Bloomberg, PDVSA bonds maturing in 2027 were quoted at 20 cents on the dollar in London this morning.).

Oh, and in case you missed it, Apple reported blow-out earnings after the bell yesterday. One of the interesting tidbits from the report was Tim Cook’s comment that the company’s “wearable” division would be a Fortune 400 company if it were a standalone entity. The news has the stock and the NASDAQ flying in the early going.

Thought For The Day:

The art of being wise is the art of knowing what to overlook. -William James

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 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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

Should We Still Count On a Year-End Rally?

It is said that history doesn’t repeat, but that it often rhymes. And based on my experience, this is certainly true in the stock market. It is this very concept that is behind the study of seasonality on Wall Street. As we’ve discussed a time or twenty in this space, historical cycles in the stock market tend to be pretty powerful. Generally speaking, stocks largely follow a seasonal pattern – well, except when they don’t, of course!

This year is an example of when traders simply ignored the seasonal tendencies and went a different direction. As in the polar opposite direction, that is. Instead of the meaningful correction that was projected to occur between August through October (a decline that might wipe out the year’s gains), investors looked ahead to better days for the economy and earnings, as well as the good stuff from tax reform, and powered the U.S. stock market to a series of new all-time highs.

The question, of course, is if the positive seasonal cycles that tend to occur at this time of year are still on the table. In other words, if the meaningful decline didn’t happen during the fall, can we really expect the traditional year-end rally to materialize? Or will the market just continue to go the other way and make a complete mockery of the seasonal cycles?

For answers to this question, I turned to the computers at Ned Davis Research. Here’s what I learned…

First, we need to recognize that this year’s “fall correction” (if you can call the decline of 2.2% that occurred in mid-August a correction) was one of the smallest on record. In fact, this year’s “fall pullback,” which have averaged -9.9% since 1928 (as defined by the total decline seen on the S&P 500 between July 31 and October 31 during calendar years), was the sixth smallest seen in history. You have to go back to 2006 to find a smaller decline (-1.5%) and back to 1968 before that.

The point should be clear. Despite the fact that the fall pullbacks have been pretty small over the last two years doesn’t overshadow the fact that declines of less than 5% during the August – October period are rare.

Getting back to the question at hand, there is good news when looking ahead from an historical perspective. You see, in years when the fall pullback was less than 5%, NDR tells us that the average gain for the November – December period has been 3.7%. This compares very favorably to the average gain seen for all Nov-Dec periods of 2.1%.

In addition, the odds of a gain during the final two months of the year also improve handily here. When the fall pullbacks have been less than 5%, the S&P 500 has produced a gain in the Nov-Dec period 82.1% of the time, which, again, is better than the historical average since 1928 of 69.7%.

I will also note that the years in which the S&P 500 did decline during the last two months of the calendar year had something in common. Cutting to the chase, since the turn of the century, the only time stocks declined instead of advanced into New Year’s Eve, was when the bears were in control of Wall Street (2015, 2007, 2008, 2002, 2000).

The key takeaway here is that despite the fact that the market simply ignored the negative tendencies during the August – October period this year, the odds of additional gains for stocks during the last two months of the year are actually pretty darn good.

So, unless something comes out of the wood work that would cause traders to ignore the strong seasonal cycles here (something like Tax Reform falling on its face or the economy suddenly hitting a speed bump, for example) we should probably give the bulls the benefit of any/all doubt and continue to buy the dips.

Thought For The Day:

The most powerful warriors are patience and time. -Leo Tolstoy

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 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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

What A “Blow-Off” Looks/Feels Like

The title of yesterday’s missive was “The Blow-Off Stage?”. The suggestion was given that the dominant color on my favorite models/indicator boards relating to the stock market’s trend and momentum is green, it could be possible that we are seeing what is termed a “blow-off” phase.

However, it occurred to me that not everyone reading my oftentimes meandering morning market missive might be familiar with the term. So, this morning, I thought we’d review what a “blow-off” phase looks and feels like. And then I’ll throw in a few stats, just to keep it interesting.

In general, a “blow-off” phase tends to mark the end of a cyclical bull phase. To review, the database at Ned Davis Research tells us that the cyclical bull moves in the stock market (defined as an increase in the DJIA of at least 30% after 50 calendar days – or a gain of 13% over a period of at least 155 days) since 1900 have produced an average gain of 85.5% over 768 days.

However, as logic would dictate, cyclical uptrends that occur when the stock market is in the midst of a secular bull run (note that several cyclical moves tend to occur within secular moves, which tend to last many years) tend to be longer and stronger. For example, the average gain for cyclical bull markets that occur within secular bulls since 1900 has been 106.7% over 1027 days.

To be sure, identifying a blow-off stage is best done with a healthy dose of hindsight. As such, anyone trying to suggest that such a move is occurring in real time is likely “making a call.” And to clarify, I am not suggesting that what we are seeing IS, in fact, a blow-off phase. No, I am merely trying to alert everyone to the idea that we COULD be seeing such a move here. (Or not!)

I’ve witnessed a grand total of 10 blow-offs during my career, which began in 1980. There were 3 in the 1980’s, 3 in the 1990’s, 4 in the 2000’s (well, to be fair, the blow-off that ended in January 2000 should probably be placed in the 1990’s category as it was a doozie!), and 1 so far in the decade that began in 2010.

The first thing to recognize here is that we haven’t seen a blow-off phase since April 2011. So, it’s been awhile.

Next, blow-offs tend to be characterized by an overly bullish mood (if not euphoric) from a sentiment standpoint. By the time stocks make their final run during what amounts to a fairly long bull cycle, just about everybody in the game understands and can recite the bull case. I.E. everybody “knows” the reasons that stocks are going to continue to go up. The term “no brainer” tend to get used a lot during the blow-off phase.

Earnings are growing. The economy is humming along. And something is happening to cause investors to think that risk in the stock market is an antiquated concept. (In this case, I’ll argue that the “something that is happening” is a combination of QE and tax reform.)

And finally, there is a little something called capitulation. This is where fund managers who may have been concerned about risk factors in the market (valuations come to mind on this front here) simply give up. Performance anxiety sets in as year-end bonuses are on the line. So, managers simply throw up their hands and jump on the bull band wagon.

The Average Blow-Off…

As for what to expect from a statistical standpoint, Ned Davis himself published a report this week that shed some light on what the blow-off phase has looked like.

However, the first point the venerable Mr. Davis makes is that his table of “blow-offs” is “too subjective for my taste.” Ned says that (a) there have been many instances where a big rally doesn’t actually wind up being the final rally of the cyclical trend and (b) the starting dates of the final moves can vary depending on who is making the call and the criteria they are using.

With these caveats out of the way, I find it interesting to note that since 1960, NDR has identified 13 blow-off phase rallies that marked the end of cyclical bull moves. The average gain on the DJIA during these moves has been 12.7%. And the average duration of the rally has been 58 trading days.

Ned also points out that IF we are seeing a blow-off at the present time, the move likely began on August 18th with the Dow closing at 21,674.51. The high of this move occurred a week ago at 23,441.76, putting the gain for the current move at 8.15% on the Dow (which has been the strongest index of late).

So, based on history, if the DJIA winds up putting in an average blow-off move (trust me, it won’t), the Dow could add another 4.55% – putting the high at 24,509.

For anyone thinking that the next bear market is going to look a lot like 2008 (I doubt it), you are probably thinking that it might be best to exit stage left now. Why not skip that last little leg and save yourself the pain of the ensuing bear, right?

The problems with this thinking include (a) we don’t know if this is indeed a blow-off stage, (b) the stock market has a strong upward bias over time, (c) the final moves in bull markets vary greatly, and (d) in my experience, the final move tends to last longer than anyone can possibly imagine.

It is for this reason that I prefer to avoid “making a call” and suggesting that I know what is going to happen next. No, I prefer to deal with what “IS” happening in the market and adapt when necessary. And the bottom line right now is the bulls are in control of the game. So until some of our market models start to wave red flags, its a bull market until proven otherwise and the dips should continue to be bought.

Thought For The Day:

Well-timed silence hath more eloquence than speech. -Martin Farquhar Tupper

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 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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

The Blow-Off Stage?

I experienced some “technical difficulties” when attempting to get this report published yesterday morning. Between a new location for files, a new laptop, and the fact I was attempting to publish in the wee hours from a hotel room, well, I’m sorry to say that things just didn’t work out. But, time and some technical assistance cured my ills and so we will file this under the category of better late than never. To review, the primary goal of this exercise is to try and remove any subjective notions about what “should” be happening in the market in an attempt to stay in line with what “is” happening in the markets. So, let’s get started.

The State of the Trend

We start our review each week with a look at the “state of the trend.” These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.


View Trend Indicator Board Online

Executive Summary:

  • With the S&P 500 closing at yet another all-time high on Friday, it is not surprising to see all of our Trend Models positive this morning. 
  • Ditto of the Channel Breakout Systems. P.S. a breakout to new highs represents a renewed buy signal from this trend-oriented system.
  • After being completely out of sync with the trend over the past month and a half, the Cycle Composite is positive this week – but remains choppy for much of the month. 
  • The Trading Mode models confirm that the major indices are in a “trending” mode at this time. Feel free to put this one in the “duh” category.

The State of Internal Momentum

Next up are the momentum indicators, which are designed to tell us whether there is any “oomph” behind the current trend.


View Momentum Indicator Board Online

Executive Summary:

  • Both the short- and intermediate-term Trend and Breadth Confirm Models remain positive. 
  • Despite the market closing at new highs, the Industry Health Model slipped to Neutral. However, I will note that the change was more technical in nature and not driven by a big decline in the model reading. As such, I would not take any action on this change. 
  • The short-term Volume Relationship remains positive. But I will note that the up-volume line has rolled over, which suggests that internal momentum may be waning. 
  • We’re seeing the same type of action in the intermediate-term Volume Relationship model – although demand volume remains well above supply volume, the trend of demand vol is starting to roll over and is close to entering a downtrend. Something to watch for signs of a top. 
  • The Price Thrust Indicator remains positive, but only slightly as the recent blast has weakened considerably over the past few weeks. 
  • The Volume Thrust Indicator went negative last week, which is another warning sign that internal momentum is not as strong as the action in the major indices. Again, this is a warning sign. 
  • The Breadth Thrust Indicator is stuck in neutral. However, note that the historical return for stocks remains strong in this mode.

The State of the “Trade”

We also focus each week on the “early warning” board, which is designed to indicate when traders might start to “go the other way” — for a trade.


View Early Warning Indicator Board Online

Executive Summary:

  • From a near-term perspective, stocks remain overbought. 
  • From an intermediate-term view, stocks are also overbought. 
  • The lack of meaningful volatility has kept the Mean Reversion Model largely on the sidelines this year. 
  • The short-term VIX indicator flashed a buy signal last week – albeit by a slim margin. As such, this signal should be viewed as a short-term trade. 
  • Our longer-term VIX Indicator remains on its August buy-signal. 
  • From a short-term perspective, the market sentiment model is flip-flopping between negative and neutral, but is technically negative to start the week. 
  • The intermediate-term Sentiment Model remains negative. 
  • Longer-term Sentiment readings are also flip-flopping but our main model is negative this morning.

The State of the Macro Picture

Now let’s move on to the market’s “external factors” – the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.


View External Factors Indicator Board Online

Executive Summary:

  • Monetary conditions remain neutral. 
  • Our Economic Model suggests that economic growth will remains strong. 
  • The Inflation Model continues to slip lower in the neutral zone. And while everyone on the planet is “looking” for inflation to perk up at some point, so far there is no evidence to support this idea. 
  • The Absolute Valuation Model remains negative. 
  • Our Relative Valuation Model remains neutral, but is heading the wrong direction – this is in reaction to the recent backup in rates

The State of the Big-Picture Market Models

Finally, let’s review my favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.


View My Favorite Market Models Online

Executive Summary:

  • The Leading Indicators model, which was our best performing timing model during the last cycle, remains positive. However, it is worth noting that the model reading has slipped a bit recently. 
  • We have recently upgraded our “State of the tape” model to include an additional 5 indicator readings. The current reading of the new model is strong. 
  • The Risk/Reward model remains modestly positive at this stage. 
  • The new, expanded External Factors model includes a total of 10 indicators ranging from earnings, yields, sentiment, monetary, economic, and volatility. The current model reading is high neutral.

My Takeaway…

With the stock market starting the week at new all-time highs, it is easy to argue that “the trend is your friend” and that it’s okay to “party on Wayne.” However, given the length of the current bull move and the readings of some of my favorite big-picture models, I think there is a decent chance that we are seeing the beginning of a “blow-off phase” where performance-chasing and capitulation are the primary drivers. In short, the combination of the recent GDP numbers and earnings reports from big-name tech suggest that there is really no reason not to be long stocks here. And with the calendar about to flip again, pressure on underperforming managers to get cash off the books increases. The bottom line here is this is a bull market until proven otherwise. However, with valuations as elevated as they are, this is also no time to “set it and forget it.”

Sample Risk Exposure System

Below is an EXAMPLE of how some of above indicators might be used in order to determine exposure to market risk. The approach used here is a “Model of Models” comprised of 10 independent Models. Each model included gives separate buy and sell signals, which affects a percentage of the model’s overall exposure to the market.

Trend models control a total 40% of our exposure. The 3 Momentum Models and 3 Environment Models each control 10% of the portfolio’s exposure to market risk. The model’s “Exposure to Market Risk” reading (at the bottom of the Model) acts as an EXAMPLE of a longer-term guide to exposure to market risk.

In looking at the “bottom line” of this model, my take is that readings over 75% are “positive,” readings between 50% and 75% are “moderately positive,” and readings below 50% should be viewed as a warning that all is not right with the indicator world.


View Sample Exposure Model Online

The model above is for illustrative and informational purposes only and does not in any way represent any investment recommendation. The model is merely a sample of how indicators can be grouped to create a guide to market exposure based on the inputs from multiple indicators/models.

Thought For The Day:

The kindest word in all the world is the unkind word, unsaid. -Unknown

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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

Indicators Explained

Short-Term Trend-and-Breadth Signal 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 NDR’s 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.

Channel Breakout System Explained: The short-term and intermediate-term Channel Breakout Systems are modified versions of the Donchian Channel indicator. According to Wikipedia, “The Donchian channel is an indicator used in market trading developed by Richard Donchian. It is formed by taking the highest high and the lowest low of the last n periods. The area between the high and the low is the channel for the period chosen.”

Intermediate-Term Trend-and-Breadth Signal Explained: This indicator incorporates NDR’s All-Cap Dollar Weighted Equity Series and A/D Line. From 1998, when the A/D line is above its 45-day smoothing and the All-Cap Equal Weighted Equity Series is above its 45-day smoothing, the equity index has gained at a rate of +17.6% per year. When one of the indicators is above its smoothing, the equity index has gained at a rate of +6.5% per year. And when both are below, the equity index has lost -1.3% per year.

Industry Health Model Explained: Designed to provide a reading on the technical health of the overall market, Big Mo Tape 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.

Cycle Composite Projections: The cycle composite combines the 1-year Seasonal, 4-year Presidential, and 10-year Decennial cycles. The indicator reading shown uses the cycle projection for the upcoming week.

Trading Mode Indicator: This indicator attempts to identify whether the current trading environment is “trending” or “mean reverting.” The indicator takes the composite reading of the Efficiency Ratio, the Average Correlation Coefficient, and Trend Strength models.

Volume Relationship Models: These models review the relationship between “supply” and “demand” volume over the short- and intermediate-term time frames.

Price Thrust Model 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 Model 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 Model 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.

Short-Term Overbought/sold Indicator: This indicator is the current reading of the 14,1,3 stochastic oscillator. When the oscillator is above 80 and the %K is above the %D, the indicator gives an overbought reading. Conversely, when the oscillator is below 20 and %K is below its %D, the indicator is oversold.

Intermediate-Term Overbought/sold Indicator: This indicator is a 40-day RSI reading. When above 57.5, the indicator is considered overbought and wnen below 45 it is oversold.

Mean Reversion Model: This is a diffusion model consisting of five indicators that can produce buy and sell signals based on overbought/sold conditions.

VIX Indicator: This indicators looks at the current reading of the VIX relative to standard deviation bands. When the indicator reaches an extreme reading in either direction, it is an indication that a market trend could reverse in the near-term.

Short-Term Sentiment Indicator: This is a model-of-models composed of 18 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a short-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Intermediate-Term Sentiment Indicator: This is a model-of-models composed of 7 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a intrmediate-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Long-Term Sentiment Indicator: This is a model-of-models composed of 6 independent sentiment indicators designed to indicate when market sentiment has reached an extreme from a long-term perspective. Historical analysis indicates that the stock market’s best gains come after an environment has become extremely negative from a sentiment standpoint. Conversely, when sentiment becomes extremely positive, market returns have been subpar.

Absolute Monetary Model Explained: The popular cliche, “Don’t fight the Fed” is really a testament to the profound impact that interest rates and Fed policy have on the market. It is a proven fact that monetary conditions are one of the most powerful influences on the direction of stock prices. The Absolute Monetary Model looks at the current level of interest rates relative to historical levels and Fed policy.

Relative Monetary Model Explained: The “relative” monetary model looks at monetary indicators relative to recent levels as well as rates of change and Fed Policy.

Economic Model Explained: During the middle of bull and bear markets, understanding the overall health of the economy and how it impacts the stock market is one of the few truly logical aspects of the stock market. When our Economic model sports a “positive” reading, history (beginning in 1965) shows that stocks enjoy returns in excess of 21% per year. Yet, when the model’s reading falls into the “negative” zone, the S&P has lost nearly -25% per year. However, it is vital to understand that there are times when good economic news is actually bad for stocks and vice versa. Thus, the Economic model can help investors stay in tune with where we are in the overall economic cycle.

Inflation Model Explained: They say that “the tape tells all.” However, one of the best “big picture” indicators of what the market is expected to do next is inflation. Simply put, since 1962, when the model indicates that inflationary pressures are strong, stocks have lost ground. Yet, when inflationary pressures are low, the S&P 500 has gained ground at a rate in excess of 13%. The bottom line is inflation is one of the primary drivers of stock market returns.

Valuation Model Explained: If you want to get analysts really riled up, you need only to begin a discussion of market valuation. While the question of whether stocks are overvalued or undervalued appears to be a simple one, the subject is actually extremely complex. To simplify the subject dramatically, investors must first determine if they should focus on relative valuation (which include the current level of interest rates) or absolute valuation measures (the more traditional readings of Price/Earnings, Price/Dividend, and Price/Book Value). We believe that it is important to recognize that environments change. And as such, the market’s focus and corresponding view of valuations are likely to change as well. Thus, we depend on our Valuation Models to help us keep our eye on the ball.

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

What Could Go Wrong?

Yesterday’s missive took a glass-is-half-full stance by exploring the various tailwinds the bulls are counting on to keep stock prices movin’ on up. The list included earnings, economic growth, low inflation, ongoing QE, favorable seasonality, the flows into passive funds/ETFs, performance anxiety, performance chasing, the preponderance of dip-buying, and, of course, the tax trade. Good stuff.

However, since one of the key attributes of a good analyst is objectivity, I thought it might be a good idea to wander across the field this morning and talk to the players on the opposing sideline. The goal here is to try and understand each team’s key points so that we can make an informed decision on which argument is stronger.

So here goes… A rundown of the major issues that our furry friends in the bear camp are focused on from a near-term perspective.

What Everybody Knows… As the saying goes, something that everybody on Wall Street already knows isn’t worth knowing. The key here is that by the time everybody can (a) understand and then (b) quickly/easily espouse the reasons that something is supposed to happen in the market, the event is likely priced in. As such, the bears argue that the laundry list of positives are well known by now and thus, are likely priced into the market at this stage.

Earnings: I know what you’re thinking; how can both teams count an issue as theirs? In short, it depends on your point of view. While the bulls argue that earnings are growing at a strong clip, the bears suggest that the current trend of great quarters isn’t going to last much longer. Exhibit A here is although EPS for the S&P 500 enjoyed double-digit growth in the first two quarters of the year, the pace of growth is about to slow dramatically. According to FactSet’s approach (which combines actual results from companies that have reported with estimates for those yet to report results) EPS growth is expected to come in at 2.4% compared to the year-ago quarter. Now factor in (a) tougher comps going forward (especially at the beginning of next year) (b) some high profile misses from the likes of General Electric (NYSE: GE) and Wells Fargo & Co. (NYSE: WFC), and (c) the hit that insurers and reinsurers are likely to take in response to this year’s hurricane season. From the bears’ perspective, what you are left with is less than stellar fundamental support for stock prices.

Inflation: I know, I know… The bulls counted this one as a positive as well. While everybody knows that inflation has been MIA this year, the key here is the bears contend that there are signs of underlying inflationary pressures building – especially in wages. Whether or not these pressures materialize remains to be seen. However, this is an area to watch in the coming months because nothing can kill a bull market faster than a bout of inflation.

The Next Fed Chair: The betting markets suggest that the decision on the next Fed Chairman is down to Powell and Taylor. The key here is to understand that Powell is more of a status quo pick while analysts believe a Taylor nomination could lead to a higher “neutral” zone for Fed Funds and an extended tightening cycle. By the way, the bears don’t want to talk about the possibility of Janet Yellen getting the nod as this would likely be a bullish outcome for stock prices.

Valuations: We’ve covered this topic six ways to Sunday recently. And yes, everyone in the game knows that valuations are elevated. The point is there can be no denying that high valuation levels mean risk factors are also quite elevated.

Sentiment: Current sentiment readings are also quite high here. For example, one of the questions asked in the University of Michigan’s survey of consumers is the outlook for stock prices over the coming year. This week’s reading came in at an all-time high.

Yields: One of the main bear arguments is an oldie but a goodie – the end of the 30+ year secular bull market in bonds. Unfortunately, anyone singing this song has been dead wrong for years now. However, the current move on the 10-year from 2.06% on September 7 to yesterday’s 2.45% is causing the bond bears to start yapping about this issue again. The current thinking is that if/when 10-year yields hit 3%, bonds could actually become competition for stocks. Remember, post-crisis, stocks have been the only game in town as the Fed created a “cash is trash” environment.

Tax Reform Delay/Derail: It is easy to argue that much of the most recent run in stock prices is attributable to the prospects for tax reform to get done in the near-term. However, our furry friends remind us that pushing this deal across the goal line is by no means a sure thing. The bears contend that negotiations are likely to be intense and as such, there is headline risk relating to the deal ending up like the repeal/replace effort on the ACA. The bottom line is if tax reform is either delayed or worse, derailed, the 1800 point move on the Dow since mid-August could be given back in short order.

As I mentioned yesterday, this is by no means an exhaustive list of the potential negatives in the market. However, I believe we’ve hit the highlights this morning. And since I think it is important to take a walk in the other guy’s shoes every once in a while – in order to keep one’s objectivity in place – this morning’s exercise helps remind us that trees don’t grow to the sky.

Thought For The Day:

The trouble with talking too fast is you may say something you haven’t thought of yet. -Ann Landers

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 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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.

Dave Moenning

It Can’t Continue, Can It?

Yesterday, we talked about the fact that the stock market has now enjoyed the longest stretch ever without experiencing a correction of 3% or more. We noted that the CBOE Volatility Index (aka the VIX) recently hit an all-time low and that volatility in general is the lowest in decades. It is also worth noting that the S&P 500 index is up nearly 15% on the year and that the venerable blue-chip index isn’t even the best performing index so far in 2017.

And yet, nearly every single financial advisor I talk to is worried about the stock market. They are worried about valuations, investor sentiment, a replay of 1987, what the Fed is going to do next, the state of tax reform, a meltdown in ETF-land, etc. In short, advisors fret that another bear market will turn their clients’ 401K’s into 201K’s again and appear to collectively be singing the refrain from The Who’s big hit, “Won’t get fooled again.”

To these folks, it is almost inconceivable that stocks could move higher from here. And yet, the DJIA closed at yet another all-time high yesterday. So what gives?

The answer, in my opinion, is that we’ve seen this movie before – several times. Stocks climb a wall of worry and continue to march higher for longer than almost anyone can imagine. Yep, that’s how bull markets tend to work.

In my experience, bull markets don’t end when everyone on the planet is expecting a bear to begin at any moment. The market doesn’t suddenly decline 30% or so just because valuations are high. No, as I’ve opined a time or two recently, bear markets tend to be “caused” by something. And right now, with the market on solid footing, there doesn’t appear to be a bearish catalyst on the horizon.

On the contrary, it’s actually the bulls who have the wind at their backs right now. And while I do worry that the following laundry list of positives for the bull camp might be a little too popular right now (meaning that a garden-variety pullback of 3% – 5% could occur at any time, for almost any reason) the bulls do seem to have a lot going for them these days.

Below is a sampling of some of the positives that would seem to suggest the bulls may be able to just keep on keepin’ on down the road…

Earnings: One of the simplest bullish arguments is that if earnings are at record highs, then stock prices should follow suit. So, with another decent reporting season underway…

The Economy: The bottom line here is that global economic growth has been surprising to the upside this year. As a result, stock prices continue to “adjusted” to reflect the state of economic growth. This isn’t rocket science.

Inflation: The lack of inflation is a mystery to many – including the current Fed Chair, Janet Yellen. However, given that too much inflation has tended to be a bad thing for stocks historically, the current state of inflation – or lack thereof – continues to support our heroes in horns.

QE: While the US has embarked on QT (quantitative tightening), both the ECB and the BOJ are continuing to print money on a monthly basis. And since money tends to go where it is treated best, fresh capital may continue to find its way to the U.S. markets.

Seasonality: Don’t look now fans, but the seasonal headwinds that have been blowing since August are about to turn into tailwinds as the November – April period tends to be the best time of year to be invested in the stock market.

Passive Flows: Remember, managers of passive mutual funds and ETFs don’t really do much selling when money is flowing in. And with investors continuing to pump money into the passive arena each month, well…

Performance Anxiety: Fund managers that have kept some powder dry or played the game conservatively in 2017 are likely behind their bogeys at this point. And with performance bonuses on the line, this is the time of year when capitulation can come into play.

Performance Chasing: This is a close cousin to the performance anxiety issue as investors of all shapes and sizes like to chase the leaders into year-end.

BTFD: Another potential reason that volatility has been so low this year is that everyone on the planet is now a dip buyer. And given that cash on the sidelines may need to get invested, any/all dips continue to be met with buying.

The Tax Trade: What list of bullish tailwinds would be complete without a discussion of the Trump Trade, right? Or in this case, the expectations for some form of tax reform. The argument is simple – lower taxes mean higher earnings. ‘Nuf said.

To be sure, this is not an exhaustive list of the bull camp arguments. However, running through this list does give you a reason or two to at least consider the idea that stocks could continue to be bought in the coming months.

Sure, a correction could begin at any time. And gun to the head, I’d argue that any headline suggesting that tax reform could be delayed or derailed might be the trigger our furry friends are looking for. But so far at least, it looks to be more of the same. Party on Wayne!

Thought For The Day:

By swallowing evil words unsaid, no one has ever harmed his stomach. -Winston Churchill

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 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 Tax Reform

      2. The State of the Earnings Season

      3. The State of Fed Policy/Leadership

      4. The State of the Economy

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Disclosure: At the time of publication, Mr. Moenning and/or Sowell Management Services held long positions in the following securities mentioned: none. Note that positions may change at any time.


Disclosures

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 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 is an investment adviser representative of Sowell Management Services, a registered investment advisor. For a complete description of investment risks, fees and services, review the firm brochure (ADV Part 2) which is available by contacting Sowell. Sowell is not registered as a broker-dealer.

Employees and affiliates of Sowell may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Positions may change at any time.

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.

Advisory services are offered through Sowell Management Services.