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State of the Markets: The consolidation continues, but we're watching…

The President's new, more aggressive campaign against ISIS appears to be spooking investors in the early going today. Recall that it was less than two weeks ago when Obama said “we don't have a strategy yet.” This appears to have changed as the President laid out an expanded campaign to “degrade and ultimately” destroy the Islamic State including targeted air strikes in Syria in last night's address. Traders are also watching the ongoing decline in oil prices (Crude futures currently trading down at $90.59) as well as softer inflation data out of China (China CPI growth moderated to 2.0% y/y in August from 2.3% in July, which was below the consensus for 2.2% rate of increase). Stock markets are down fractionally across the board in Europe and U.S. futures point to a weaker open on Wall Street.

Current Market Outlook

Although the major indices bounced on Wednesday, concern about the Fed changing course at this month's meeting as well as the weakening economic outlook in Europe appears to be keeping enthusiasm for buying stocks in check. The primary issue facing stocks at this time is the debate over when the Fed will alter their guidance on monetary policy. Several sources have reported this week that there is growing discomfort internally at the Fed over the “considerable time” verbiage relating to how long rates will remain at zero after QE ends. The crux of the issue seems to be that the recent run of stronger-than expected economic data has led Fed Chair Yellen and others in the FOMC to acknowledge the possibility they may need to raise rates sooner than they thought just a few months ago. In short, this focus appears to be driving the current consolidation phase. But for now, our market models remain moderately positive.

Looking At The Charts

When dealing with trading ranges in the markets, the tricky part is to determine when the range has been broken versus when the range has merely been expanded. Given the tightness of the current range on the S&P 500, one can argue that Tuesday's dance to the downside as well as yesterday's intraday move down did just that. Yesterday's early decline also tested the support zone in the 1980-85 range. As such, yesterday's lows represents important technical levels in the indices. Should those lows be broken to the downside, you can rest assured that further technical selling will come in. But for now, we can argue that this remains a range-bound consolidation phase.

See more at StateoftheMarkets.com

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.

Dave Moenning

David Moenning is Chief Investment Officer at Heritage Capital Management, a Chicago-based registered investment advisory firm. Mr. Moenning began his investment career in 1980 and formed Heritage Capital in 1989. Dave’s firm focuses on “active management” and focuses on managing market risk on a daily basis. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Mr. Moenning is the 2013-14 President of NAAIM (National Association of Active Investment Managers) an organization dedicated to active management strategies. Follow Dave on Twitter at @StateDave.