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State of the Markets: The focus remains on Fed and headlines

The early action on this fine Monday morning suggests that traders are still taking their cues from any/all headlines relating to Ebola. U.S. futures had been steady for much of the morning until a headline saying that a pediatric patient is evaluated crossed the wires. Almost instantly, futures doubled their losses on the news. And while the decline is not significant at this point, this reminds us that the algos are primed and ready to react to this story.

The big financial news today is the weekend report from the ECB stating that 25 of the 130 largest European banks failed the latest round of stress tests and will need to raise €24.6 billion in new capital. However, the bank notes that no major banks failed the stress tests and that more than €15 billion in new capital has already been raised.

Also in Europe, the latest German IFO Business Climate Index came in below expectations, falling for a sixth consecutive month.

In Brazil, the stock market is down more than -5% on news that incumbent president Dilma Rousseff defeated pro-business candidate Aécio Neves in Sunday’s runoff election.

And sticking with the global theme, there is a fair amount of chatter this morning about the Goldman report in which the firm reduced their forecast for oil demand. As such, traders will likely continue to watch the all-important $80 line in the sand for crude today.

Looking ahead, investors should remember that the FOMC begins its two-day meeting on Tuesday and is expected to announce the end of QEIII at the conclusion Wednesday afternoon. Note that there is no press conference scheduled for this meeting.

Here at home, investors will get a look at the Flash PMI at 9:45 am eastern and Pending Home Sales at 10:00 am. U.S. futures are now pointing to a lower open on Wall Street.

Current Market Environment

The question of the day would appear to be: Now what? Stocks experienced the largest pullback in a couple years during the mid-September through mid-October period as fears about the state of the global economy caused investors to rethink the latest new highs. However, in the 7 sessions since October 15, the S&P has recovered almost 70% of the decline and now sits just 2.4% from the all-time high. So, with serious resistance overhead, it will be interesting to see if the bulls can keep movin’ on up. Our market models have improved on the spirited bounce but remain neutral on balance at this time.

Looking At The Charts

The key to the near-term technical picture is the overhead resistance awaiting the major indices. For the S&500, the next 50 points may proved significantly more difficult to get through than the last 50. The bears are also quick to point out that there is a fairly large gap still open on the chart of the S&P down at 1905. And should our furry friends get something going to the downside, this area is likely to become a magnet. But for now, the short-term trend is up.

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.