Dave Moenning

Bulls Get Benefit of Doubt, But…

It’s a new week, so let’s start things off right with an objective review of my key market models/indicators and see where things 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 order 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 has slipped to neutral – albeit by the slimmest of margins. 
  • The short-term Channel Breakout System remains positive. A break below 2428 early in the week and 2444 later in the week would turn the indicator negative. 
  • The intermediate-term Trend Model is currently positive. However a move below 2450 would cause a change. 
  • The intermediate-term Channel Breakout System continues on its 8/22 Buy signal. A break below 2417 flips the indicator to red. 
  • The long-term Trend Model remains positive. 
  • The Cycle Composite continues to point lower into mid-October. 
  • All three Trading Mode models call this a mean-reverting environment.
  • In sum, we’ll call the trend board modestly positive, but only by a slim margin.

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 slipped to neutral last week. 
  • The Industry Health Model remains stuck in the neutral zone 
  • The short-term Volume Relationship continues negative and up-volume is now at the lowest level seen since mid-2014 
  • The intermediate-term Volume Relationship continues to struggle with Demand Volume still in a clear downtrend. 
  • The Price Thrust Indicator managed to get up off the mat last week and remains neutral here. 
  • The Volume Thrust Indicator is also neutral to start the week. 
  • The Breadth Thrust Indicator remains positive by a small margin.
  • In sum, the momentum board is largely neutral as there isn’t any real “oomph” in the market 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 may start to “go the other way” — for a trade.


View Early Warning Indicator Board Online

Executive Summary:

  • From a near-term perspective, stocks are now retreating from an overbought condition. 
  • From an intermediate-term view, stocks are neutral as the movement has been largely sideways for several months. 
  • The Mean Reversion Model has flipped to green and suggests that there is some upside potential here. 
  • The VIX Indicators remain on buy signals but are currently stuck in never-land. 
  • From a short-term perspective, market sentiment has deteriorated, which is a positive. 
  • The intermediate-term Sentiment Model remains neutral 
  • Longer-term Sentiment readings continue to suggest a great deal of complacency in the market, which is a negative. 
  • In sum, the early warning board suggests neither team has an edge here.

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 in the neutral zone this week where historical returns have been mediocre at best. 
  • With rates having moved to the lows for the year, the Relative Monetary Model continues to improve. This model is now solidly positive. 
  • Our Economic Model (designed to call the stock market) is neutral, which has led to returns on par with historical averages over time. It is worth noting that the Economic Model designed to call the economy continues to point to strong GDP growth. 
  • The Inflation Model is now smack in the middle of the neutral zone. This tells us there is little in the way of inflationary pressures in the system. 
  • The Absolute Valuation Model suggests stocks are still very expensive. 
  • However, the Relative Valuation Model continues to improve and is very close to a bullish reading.

The State of the Big-Picture Market Models

Finally, let’s review our 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, is now heading in the right direction again – but still neutral. 
  • The market’s leadership remains narrow, which causes our “State of the Tape” model to flash yellow. 
  • The Risk/Reward model slipped back to neutral this week. Thus, we need to recognize that this is not a low-risk environment. 
  • The External Factors model remains positive this week, but the model reading is well below that seen at the beginning of the current cyclical bull in early-2016.

The Takeaway…

Let’s see here… the trend of the market is between neutral and moderately positive, momentum is neutral, the early warning board doesn’t give either team an edge, the external factors are modestly positive, and my favorite big-picture models are sporting a largely yellow. At the same time, we must recognize that this is a bull market until proven otherwise. So, given the we remain in a seasonally weak period until at least the middle of October and there are several “issues” in the market these days, this is probably a good time to “chill” from a trading perspective. However, the bulls should be given the benefit of any doubt from a longer-term perspective – and the dips should be bought.

Publishing Note: I am traveling the first half of the week and then preparing for my son’s wedding at the end of the week. So, unless something major occurs in the markets, I will see you next week.

Thought For The Day:

It’s not the load that breaks you down, it’s the way you carry it. -Lou Holtz

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 Geopolitics

      2. The State of the Economic/Earnings Growth (Fast enough to justify valuations?)

      3. The State of the Trump Administration

      4. The State of Fed Policy

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

A Bull Market Until Proven Otherwise

Good Monday morning and welcome back to the land of blinking screens. Global growth, the Trump/Russia situation, oil, the upcoming Fed meeting, and the greenback are in focus to start the week.

On the growth front, the euro area Markit PMI fell to 55.8 in July, which is the weakest reading in six months. Next up, the IMF contends that the world will rely less on the United States to drive global growth in the coming years, cut its forecast for U.K. growth, and increased growth estimates for Japan and the euro area.

Next up, major oil producing countries are meeting in Russia and so far at least, there are no major changes/announcements relating to supply anticipated.

As for the Fed, Janet Yellen’s merry band of bankers meets again this week. While just about everybody agrees that the Yellen & Co. won’t take any action, the meeting, as usual, will be all about the post-meeting statement versus market expectations. Markets are looking for the Fed to officially embrace the stance Yellen took in her recent Congressional testimony.

Finally, since it’s the start of a new week, let’s get to our objective review the key market models and indicators and see where things stand. To review, the primary goal of this weekly exercise is to remove any subjective notions I might have in an effort to stay in line with what “is” happening in the markets.

The State of the Trend

We start 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 one day removed from the latest all-time high, the short-term Trend Model remains positive.
  • Both the short- and intermediate-term Channel Breakout Systems are on buy signals and sporting green lights.
  • The intermediate-term Trend Model is also positive with the weekly chart of the S&P at all-time highs.
  • The long-term Trend Model remains solidly green.
  • The Cycle Composite points slightly higher for the next two weeks before entering a meaningful downtrend.
  • The Trading Mode models suggest a “trending” environment has begun.

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 are positive
  • The Industry Health Model is going nowhere fast with a reading slightly above neutral.
  • The short-term Volume Relationship model is positive, but only by a slight margin. Note that while the upside volume line is above downside volume, upside volume is actually in a downtrend.
  • The intermediate-term Volume Relationship remains in good shape. After flirting with a technical breakdown, upside volume is now trending higher again.
  • The Price Thrust Indicator is green.
  • The Volume Thrust Indicator remains neutral.
  • The Breadth Thrust Indicator is also neutral again this week.

The State of the “Trade”

We also focus each week on the “early warning” board, which is designed to indicate when traders may 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. However, this is not, in and of itself, a reason to sell.
  • From an intermediate-term view, stocks are also overbought. The fact that both these models are overbought improves the odds for the bears.
  • The Mean Reversion Model slipped to neutral last week.
  • The VIX Indicators are negative across the board.
  • From a short-term perspective, market sentiment is has turned overly complacent.
  • The intermediate-term Sentiment Model continues to wave it’s warning flag.
  • Ditto for the longer-term Sentiment readings.

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.
  • On a relative basis, our Monetary Model continues to improve within the neutral zone.
  • Our Economic Model (designed to call the stock market) has rediscovered its mojo and is in good shape here.
  • The Inflation Model continues to fall within the neutral zone. But this is a clear indication that inflation pressures continue to ease.
  • Our Relative Valuation Model remains neutral but is moving ever-so slightly back toward the “undervalued” zone.
  • The Absolute Valuation Model continues to sing the same song – stocks are very overvalued relative to traditional valuation indicators.

The State of the Big-Picture Market Models

Finally, let’s review our 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, continues to sport a decent reading.
  • The song remains the same with the tape as the indicators are moderately positive but not as robust as we’d like to see.
  • The Risk/Reward model continues to suggest that some caution is warranted.
  • The External Factors model continues to improve and is very close to moving into the outright positive zone. This is one of the better signs that I can find for the bull camp.

The Takeaway…

With the S&P and Dow making new highs last week, it is not surprising to see a lot of green on the indicator boards. And while there are some things to be concerned about – such as the projection of the cycle composite, the level of investor complacency, the overbought condition, and the lack of economic “oomph,” the bottom line is this is a bull market until proven otherwise and our heroes in horns should be given the benefit of the doubt here. Experience has taught me that bull markets can last longer than almost anyone can imagine and go higher than most bears can withstand. So, as long as rates are low, the economy is growing, inflation is tame, and earnings are improving, stocks can be bought. My only caveats are to remember that typically stocks don’t move in a straight line and that this is NOT a low-risk environment. So, while I’m happy to remain on the bull train, I will continue to keep an eye on where the nearest exits are located.

Thought For The Day:

Always do right. This will gratify some people and astonish the rest. – Mark Twain

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

      1. The State of the U.S. Economic Growth (Fast enough to justify valuations?)

      2. The State of Earnings Growth

      3. The State of Trump Administration Policies

      4. The State of the Fed

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.

Looking for a “Modern” approach to Asset Allocation and Portfolio Design?

Looking for More on the State of the Markets?


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

Leadership Is Clearly Narrowing

Good Monday morning and welcome back. The election in France, Warren Buffett wisdom, and oil are in focus this morning. On the election front, there was no big populist surprise in France on Sunday after Emmanuel Macron ran away with the Presidential election. As for Berkshire Hathaway’s big meeting over the weekend, Warren Buffett and Charlie Munger entertained the crowd of more than 40,000 by espousing investing wisdom as well a mea culpa or two on investing in technology. And finally, Saudi Arabia and Russia appear to be working together on extending production cuts in an effort to bolster the sagging price of crude. On Wall Street, stock futures are pointing to a sloppy open. Today, the bulls will be looking to extend the recent rally and establish a new upleg while the bears are hoping to push the S&P 500 back into its two-plus month trading range.

Since it’s Monday, let’s move on to an objective review the key market models and indicators. The primary goal of this exercise is to remove any preconceived, subjective notions about the markets and ensure that we stay in line with what “is” really happening in the market. So, let’s get started…

The State of the Trend

We start 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.

Executive Summary:

  • The short-term Trend Model is positive at this time as price is above its upwardly sloping smoothing 
  • The short-term Channel Breakout System is technically negative, but within a point of flipping to positive. So, any advance from Friday’s close would produce a “breakout” buy signal. 
  • The intermediate-term Trend Model remains solidly positive 
  • The intermediate-term Channel Breakout System signal is the same as the short-term system at this point. See above. 
  • The long-term Trend Model is positive 
  • The Cycle Composite points lower for the next couple weeks 
  • The Trading Mode models remain in mean-reverting mode. However, with the NASDAQ trending higher and the S&P close to breaking out, I would expect these indicators to confirm in the near-term

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…

Executive Summary:

  • Our short-term Trend and Breadth Confirm Model moved up into positive territory – but only by the skinniest of margins 
  • The intermediate-term Trend and Breadth Confirm Model has remained positive for several weeks now – a positive sign 
  • The Industry Health Model remains stuck in neutral – an indication of narrow market leadership, which is typical of late-stage bulls 
  • The short-term Volume Relationship has improved and is close to turning positive. However, I would expect to see stronger readings here with the market at all-time highs. 
  • The intermediate-term Volume Relationship is healthy 
  • The Price Thrust Indicator is currently positive, but again, not at the level you’d like to see at new highs 
  • The Volume Thrust Indicator slipped to neutral last week but could easily break back into green with some upside movement in the indices 
  • The Breadth Thrust Indicator also slipped into the neutral zone. Again, this is not what you would expect to see with record close

The State of the “Trade”

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

Executive Summary:

  • From a near-term perspective, stocks are overbought. And my favorite stochastic is on the verge of signaling a “positive overbought” reading (a market that gets overbought and stays overbought tends to be strong) 
  • From an intermediate-term view, stocks are neutral. This tells us that the bulls have some room to run if they can find a reason. 
  • The Mean Reversion Model remains on a sell signal. 
  • Both of my VIX Indicators have flashed sell signals recently. 
  • From a short-term perspective, market sentiment is remains neutral 
  • The intermediate-term Sentiment Model remains negative 
  • Longer-term Sentiment readings continue to be overly optimistic – a 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.

Executive Summary:

  • Absolute Monetary conditions are holding steady in the lower reaches of the neutral zone 
  • On a relative basis, our Monetary Model continues to improve within the neutral zone 
  • Our Economic Model (designed to call the stock market) remains out of sync, but is improving 
  • The Inflation Model continues to pull back within the neutral zone. As I’ve mentioned recently, this tells me the recent inflationary pressures are receding. 
  • Our Relative Valuation Model is now solidly in neutral zone 
  • The Absolute Valuation Model remains very negative

The State of the Big-Picture Market Models

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

Executive Summary:

  • The Leading Indicators model, which did a fine job during the last bear phase, issued a sell signal last month and remains in the neutral zone 
  • The State of the Tape model remains neutral at this time due to narrowing leadership 
  • The Risk/Reward model slipped back into the red zone last week and continues to be plagued by weak monetary conditions and extreme sentiment readings 
  • The External Factors model improved last week and moved into a mode where stocks perform above the mean. However, the overall reading remains neutral.

The Takeaway…

The good news is the NASDAQ continues to march to new highs and the S&P 500 managed to also close at a record high on Friday. The bad news is that market leadership has continued to narrow, a condition that typically occurs during the late stages of a bull market. Couple this with (a) the weak readings seen in my big-picture models and (b) the fact that our cycle work projects an ongoing rally into August and then a meaningful decline, and the argument can be made that we may be seeing the beginning of “blowoff” stage. Thus, it is important to recognize that this is NOT a low risk environment.

Thought For The Day:

A word of encouragement after failure is worth more than an hour of praise after success.

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 Geopolitical Issues

      2. The State of Earning Season

      3. The State of Trump Administration Policies

      4. The State of the U.S. Economy

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

David D. Moenning
Chief Investment Officer
Sowell Management Services

Looking for a “Modern” approach to Asset Allocation and Portfolio Design?

Looking for More on the State of the Markets?

Investment Pros: Looking to modernize your asset allocations, add risk management to client portfolios, or outsource portfolio Management? Contact Eric@SowellManagement.com


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.