Dave Moenning

Enter the Cruelest Month

Geopolitics are back in focus on this first trading day of September. North Korea’s push forward with another test on the nuclear front over the weekend caused U.S. Ambassador Nikki Haley to suggest that Kim Jong Un is “begging for war.” And given that South Korea is saying that the North is prepping to launch an intercontinental ballistic missile, the situation appears to be heating up. In response, the U.S. is looking to hit Un’s regime with even tougher sanctions via the U.N. In addition, it will be a busy week of “Fedspeak” with U.S. Federal Reserve officials Lael Brainard, Neel Kashkari, Robert Kaplan, and Bill Dudley (all voting members of the FOMC) slated to speak and the ECB meeting on Thursday. All of which is occurring as we enter what has historically been the weakest month of the calendar.

But before we get carried away with speculation of what might come next, let’s turn our attention 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 one might have in an effort to stay in line with what “is” happening in the markets. 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.


View Trend Indicator Board Online

Executive Summary:

  • Not surprisingly, the short-term Trend Model has improved on the back of the recent rebound. 
  • The short-term Channel Breakout System remains on a buy signal. A break below 2428 would turn this indicator negative. 
  • The intermediate-term Trend Model flip-flopped back to green last week. 
  • The intermediate-term Channel Breakout System remains on a sell signal and will require a move over 2491 to turn green. 
  • The long-term Trend Model remains healthy. 
  • The Cycle Composite remains negative throughout September. 
  • The Trading Mode models are currently all in mean-reversion mode.

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 flipped back to green last week. 
  • Ditto for intermediate-term Trend and Breadth Confirm Model. 
  • The Industry Health Model is still stuck in neutral. 
  • The short-term Volume Relationship upticked a bit last week. However, the overall reading remains negative and the up-volume line remains near the lows seen since 2014 
  • The intermediate-term Volume Relationship also improved a bit but demand volume remains in a downtrend. 
  • The Price Thrust Indicator managed to move up into the neutral zone – but not by much. 
  • The Volume Thrust Indicator moved up into the positive zone where historical returns are well above average. 
  • The Breadth Thrust Indicator also improved to positive last week. These are positive signs.
  • Overall, while we can J20say that momentum is improving, it is by no means robust.

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 in overbought territory. As a reminder, this is NOT a sell signal, but rather an indication that the “easy” move has already occurred. 
  • From an intermediate-term view, stocks are neutral and not yet overbought. This suggests the bulls have some room to roam from a technical perspective. 
  • The Mean Reversion Model did its job by signaling a nice short-term buying opportunity recently. However the model is now back in the neutral zone. 
  • The VIX Indicator remains on a buy signal, but is now working toward a sell. 
  • From a short-term perspective, market sentiment is improving and still negative enough to be positive. 
  • The intermediate-term Sentiment Model remains neutral. 
  • Longer-term Sentiment readings haven’t budged and remain 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 have weakened a bit recently and are neutral. 
  • The Relative Monetary Model continues to improve as rates hover near the lows of the year. 
  • Our Economic Model (designed to call the stock market) is weakening and now neutral. However, the model designed to call the economy still suggests strong growth ahead. 
  • The Inflation Model is now solidly neutral. This tells us the Fed may have trouble using inflation as cover to lift rates much farther. 
  • Our Relative Valuation Model continues to improve within the neutral zone and could turn bullish if rates move lower. 
  • The Absolute Valuation Model continues to be in overvalued territory.

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, has weakened significantly and is only a stone’s throw from flashing red. However, for now, the model is neutral. 
  • The Tape continues to muddle along in neutral/moderately positive mode. 
  • The Risk/Reward model remains modestly positive on the back of the recent move in rates. 
  • The External Factors model has also benefited from the move in rates and remains positive.

The Takeaway…

The keys this week are (a) the trend and momentum indicators have improved a bit but are nowhere near robust, (b), rates continue to be a tailwind for this market, (c) seasonality clearly favors the bears, (d) valuation levels suggest risk is high, (e) event risk remains, and (f) it’s a bull market until proven otherwise.

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

Thought For The Day:

To be old & wise, you must first have been young & stupid. -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 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

Indicators Suggest Some Caution Still Warranted

Please accept my apologies for the tardiness of this week’s report. We had traveled to Chicagoland for family gatherings over the weekend and I awoke Monday morning to no internet where we were staying. And while the trek home was an adventure thanks to Mother Nature, all is right with my world from a technology standpoint this morning.

While our thoughts and prayers remain with the folks in Houston this morning, geopolitical tensions have returned to the center stage. With North Korea’s boy-leader firing a missile over Japan last night, the concern is that retaliatory measures could be taken and the situation could easily escalate. Where this goes is anybody’s guess, but as far as the market is concerned, it appears that traders are taking a defensive stance in the early going today.

But before we get carried away with speculation, let’s turn our attention 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 one might have in an effort to stay in line with what “is” happening in the markets. 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.


View Trend Indicator Board Online

Executive Summary:

  • The short-term Trend Model is currently neutral, due at least in part to the recent sideways action. 
  • The short-term Channel Breakout System is currently positive but a break below 2417 would flip it back to negative. 
  • The intermediate-term Trend Model has improved but remains negative. 
  • The intermediate-term Channel Breakout System will require a move to new highs in order for the signal to go back to positive. 
  • The long-term Trend Model remains in pretty good shape. 
  • The Cycle Composite continues to point lower with only intermittent rallies through the middle of October. 
  • The Trading Mode models agree that stocks are back in a mean-reverting 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 has improved to neutral but it won’t take much for this model to return to negative. 
  • Our intermediate-term Trend and Breadth Confirm Model remains negative. 
  • The Industry Health Model is still stuck in the neutral zone. I continue to see this as a problem. 
  • Despite the bounce off the recent lows, the short-term Volume Relationship has continued to weaken as the up volume line is now at the lows of the year. 
  • The intermediate-term Volume Relationship model is moving in the wrong direction. 
  • The Price Thrust Indicator, which requires some “oomph” in order to move, didn’t budge during the recent rebound. 
  • The Volume Thrust Indicator is negative. 
  • The Breadth Thrust Indicator has upticked to neutral.

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, the recent oversold condition has been worked off. Thus, this mean-reversion tailwind is now still. 
  • From an intermediate-term view, stocks remain in never-never land. 
  • The Mean Reversion Model is still on a buy signal. However, the model is weakening quickly and the most recent signal looks to have been false. 
  • The VIX Indicator is technically on a buy signal at the moment. However, the return of tensions in N. Korea could change this quickly. 
  • From a short-term perspective, market sentiment is now negative, which, is a positive. 
  • The intermediate-term Sentiment Model has returned to neutral. 
  • Longer-term Sentiment readings continue to be a negative input.

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 slipped back to neutral last week. 
  • The Relative Monetary Model continues to improve and is currently at the highest level seen since last summer. 
  • Our Economic Model (designed to call the stock market) remains on a buy signal but weakened a fair amount last week. 
  • The Inflation Model continues to suggest that inflationary pressures are receding. 
  • Our Relative Valuation Model continues to improve, but remains in neutral at this time. 
  • The Absolute Valuation Model remains resolutely 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.


View My Favorite Market Models Online

Executive Summary:

  • The Leading Indicators model took a dive last week and is now only slightly above negative. This is something to watch closely. 
  • The Tape continues to be less than robust, which in my book, suggests risks are elevated. 
  • The Risk/Reward model peeked its head into positive territory and remains there this week. 
  • The External Factors model also improved enough recently to turn the box green. From a long-term perspective, this suggests that the secular bull is intact and dips should be bought.

The Takeaway…

My key takeaway this week is that from a big-picture standpoint, not much has really changed. Although some of my models have improved, the lack of green on the momentum board is very telling. And given the combination of negative seasonality and renewed geopolitical issues, I would not be surprised to see stocks test their recent lows in the near-term. The question of the day then is, do the bears have enough working for them to get something meaningful going?

Thought For The Day:

Life is 10% what happens to you and 90% how you handle it. -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 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

Have The Bears Found Their Raison d’Etre?

Good morning and welcome back to the land of blinking screens. The key to the markets in the early going on this fine Monday morning is the apparent easing of tensions with North Korea. For example, Central Intelligence Agency Director Mike Pompeo said over the weekend he’d seen “no intelligence” to indicate the U.S. was on the cusp of being attacked. National security adviser H. R. McMaster added, “we’re not closer to war than a week ago.” As such, some of the “risk off” moves that had been put in play last week are being reviewed and stock futures point to a higher open on Wall Street.

Since it’s the start of a new week, let’s now focus on 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 one might have in an effort to stay in line with what “is” happening in the markets. 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.


View Trend Indicator Board Online

Executive Summary:

  • Not surprisingly, the short-term Trend Model flipped to negative last week on the back of geopolitical tensions and a “risk off” move. 
  • The short-term Channel Breakout System is negative and would require a move over 2491 to turn green. 
  • The intermediate-term Trend Model has moved to neutral. Almost any decline from here would turn this model negative. 
  • The intermediate-term Channel Breakout System is designed to “hold” during sloppy/sideways periods and would require a move below 2410 in the next few days to go negative. 
  • The long-term Trend Model remains positive. 
  • The Cycle Composite points lower again this week. 
  • The Trading Mode models say the “trending environment” has ended and that a “mean reverting” mode is here.

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 turned red last week. As you will recall, breadth had been weak for some time.
  • The Industry Health Model is stuck in neutral 
  • The short-term Volume Relationship is now negative. Recall that while up volume had been above down volume, the up volume line had been declining. Last week, the up volume line crossed below the down volume line, turning the model negative. 
  • The intermediate-term Volume Relationship slipped to neutral as demand volume is now in a downtrend 
  • The Price Thrust Indicator flipped to negative last week. 
  • The Volume Thrust Indicator remains negative to start the week. 
  • The Breadth Thrust Indicator confirms the negative environment as well.
  • The bottom line here is the market’s internal momentum was weak before the selling started and is now negative.

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 approaching oversold territory. 
  • From an intermediate-term view, the overbought condition has been worked off and is now neutral. 
  • The Mean Reversion Model remains neutral. 
  • The VIX Indicator has spiked and has thus far, not retreated. A sustained increase would suggest that a prolonged move lower could be at hand. 
  • From a short-term perspective, market sentiment is now so bad that it’s good. 
  • The intermediate-term Sentiment Model managed to move out of negative territory and is now neutral. 
  • Longer-term Sentiment readings remain negative. 
  • In sum, the “get ready to go the other way” indicators are starting to set up in the bulls’ favor. They are NOT there yet, but they are moving in the right direction.

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 moderately positive. 
  • The Relative Monetary Model slipped back into the neutral zone last week. 
  • Our Economic Model (designed to call the stock market) remains moderately positive and hasn’t moved in last few weeks. 
  • The Inflation Model continues to fall in the neutral zone. 
  • Our Relative Valuation Model suggests stocks are fairly priced given the level of interest rates. 
  • The Absolute Valuation Model remains SOLIDLY 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.


View My Favorite Market Models Online

Executive Summary:

  • The Leading Indicators model, which was our best performing timing model during the last cycle, is in good shape. 
  • The Tape continues to muddle along. 
  • There is a lot of movement within the components of the Risk/Reward model, but the model itself remains neutral. 
  • The External Factors model remains in the positive zone, but only by the slimmest of margins.

The Takeaway…

This week saw the market internals weaken considerably in response to the increasing tensions with North Korea. In my opinion, the key takeaway is that market momentum was poor before the price action turned south. This tells me that the table was “set” for the bears if they could find a raison d’etre . The key question at this point is if this decline will reverse quickly – as all declines have recently – or will this become the meaningful pullback that the bears and the historical cycles have been calling for.

Publishing Note: The good news is my office is put together, I have internet, phones, and cable, and I there are only a couple boxes left to explore. The bad news is that completing the moving process may take longer than I anticipated and thus, morning reports may be sporadic this week.

Thought For The Day:

When you get to the end of your rope, tie a knot and hang on. -Franklin D. Roosevelt

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 North Korea situation

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

      3. The State of Tax Reform

      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.