Login to your account

Lost your password?

State of the Markets: Let's review – part I

As I have mentioned previously, in March of this year, I accepted the position of Chief Investment Officer at Sowell Management Services, an investment management firm responsible for north of $500 million of client assets. One of my jobs is to keep advisors up to date on the “state of the markets,” which is currently done via a written bi-Weekly update and a monthly video.

The goal of our bi-weekly update is to provide a summary of the keys to the market in the three main time frames (short-, intermediate-, and long-term) – as succinctly as possible. I know, I know, not my strong suit!

Since this exercise is actually quite helpful in keeping things in perspective, this morning I thought I'd expand on the premise of the current bi-weekly report and then add some graphs and additional thoughts. It is my sincere hope that you find this helpful – I know I do.

SHORT-TERM (0-30 days): Neutral

The more things change, the more they stay the same these days. In short, the U.S. stock market has been gripped with uncertainty for the vast majority of 2015. The latest dilemma facing traders on a short-term basis is China's devaluation of the yuan (or renminbi- RMB).

To be honest, given the rather dramatic declines seen in the euro and other foreign currencies this year (remember, currencies trade relative to one another), the move by the Chinese to keep their currency competitive should not be terribly surprising.

However, with this move comes concerns about global growth, the potential for an escalation of currency devaluations around the globe (i.e. a currency war), and disinflation.

Analysts are also nervous that additional moves to devalue the yuan could complicate the Fed's decision of when to begin (key word) normalizing monetary policy. On that note, the current bet is that Ms. Yellen will announce an initial increase of 0.25% in the Fed Funds rate at the September meeting. However, if the FOMC does not raise rates next month, the consensus thinking is we won't see rates moving up in 2015.

Finally, it is worth noting that the yuan news has caused traders to resume selling commodities of all colors, shapes and sizes as both oil and the commodity indices made fresh new lows recently. And as has been discussed, this situation also gives traders pause when considering the outlook for global growth.

PowerShares Commodity Index (NYSE: DBC) – Daily

 

View Larger Image

As for the price action in the U.S. stock market, the song remains the same as the major indices remain stuck in the trading range that has been with us since late February.

S&P 500 – Short-Term Perspective

 

View Larger Image

The key to the chart above is the fact that the price of the S&P 500 is in the same spot on both ends of the chart, meaning that there has been no progress at all over the few months.

So, as we've been saying, a break of this range in either direction will likely hold the key to the direction of the next meaningful move.

INTERMEDIATE-TERM (2-6 months): Neutral

When looking at the intermediate-term outlook for the market, we like to review both daily charts over a 6-month period and the weekly closing charts of the major indices as well as our mid-term momentum indicators. In looking at the charts, the message has become mixed.

S&P 500 – Intermediate-Term Perspective

 

View Larger Image

While the S&P 500, midcap, and small cap indices are all clearly in a sideways consolidation pattern (aka a trading range), the NASDAQ and NASDAQ 100 indices remain in strong uptrends, and the venerable Dow Jones Industrial Average appears to have broken into a downtrend.

NASDAQ Composite – Intermediate-Term Perspective

 

View Larger Image

The difficulty in the DJIA is largely attributable to the oil names in the index, which easily explains why the index is down nearly -2% year-to-date (through 8/14/15) while the other indexes sport plus-signs.

Dow Jones Industrial Average – Intermediate-Term Perspective

 

View Larger Image

Turning to our market momentum indicators, which are primarily intermediate-term oriented, our volume-relationship and breadth thrust models are currently waving warning flags, while our environment models remains low neutral.

The takeaway from the review of both the short- and intermediate-term market action is that the overall environment remains neutral and some caution is warranted.

Tomorrow we will finish up this review of the markets by time-frame and focus on the longer-term perspective.

Read More – 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.