David Moenning

About the Author David Moenning

David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980 and has been an independent money manager since 1987. Thus, Dave has been live on the firing line and investing for a living for more than 25 years.

Daily State Of The Markets: Bears Snatched Defeat From The…

The list of concerns is as long as your arm. The headlines are worrisome. The bull market is old. Valuations are starting to raise some eyebrows. Oil has crashed. The dollar is giving multinational companies fits. China continues to slow. And the major indices are flirting with big trouble on the charts. So, the bears have got to be given the edge here, no?

However, the bears, like the Seahawks had done just hours earlier, managed to snatch defeat from the jaws of victory on Monday. Yep, that’s right; just when you thought it was “game over,” the other team did something surprising.

Bears Feeling It

Running down the headlines on Monday, one couldn’t be blamed for thinking that the bears would most assuredly punch the ball over the goal line. They had the weapons. The defense was looking shaky. They had the ball on the one-yard line. And they had plenty of downs and time left.

Let’s review… First China’s Manufacturing PMI came in below expectations in January. At 49.8, the bottom line is the reading put the manufacturing sector of the world’s second biggest economy in contraction zone. And that can’t be good.

Next, there was Europe’s PMI data. While the report for the eurozone showed a modest uptick on a monthly basis, the takeaway was that Europe’s economy continues to go nowhere fast.

Then came the U.S. data. First, the ISM Manufacturing report was weaker than expected. The report indicated a third straight decline in monthly activity and that the index had hit the lowest level since March of last year.

And then seconds later, the Consumer Spending report for December in the U.S. also managed to disappoint. The report showed the largest drop in spending since September 2009. Granted, much of the decline was attributable to the drop in gasoline prices. But still, the negative trend in the data was clear.

Not that anyone really cares that much, but the report on Construction Spending also came in below expectations on Monday. But the bears tell us that this is important. Our furry friends contend that if housing growth is slowing… and manufacturing growth is slowing… and the consumer is spending less, well, nothing good can come of it from an economic standpoint.

Thus, it wasn’t at all surprising to see the bears take the snap at the opening bell on Monday looking ready to win the game. Within minutes, they had the Dow down 130 points. The S&P was down 14. Both indices had broken their respective 150-day moving averages. And short-term support could be heard snapping like kindling in the background. Some of the bear teammates could even be seen celebrating on the sidelines.

But Wait… What’s This?

By late morning, all signs pointed to the bears scoring a decisive victory. It had been a tough game thus far. But this was their time, they could feel it. They had surprised everyone by coming up with a lucky play and had somehow pushed the ball to within just few feet of The Promised Land.

Then it happened. Instead of punching through for the score, which most assuredly would have caused all kinds of traders to jump on the bear band wagon, oil started to rally. And then it rallied some more. And before you knew it, there was talk of oil’s decline having ended. And suddenly, everything was fine.

You see, the thinking is that a meaningful rally in oil could cure an awful lot of ills. Remember, crude’s rude move has been blamed for all kinds of difficulties and has caused a great deal of consternation about the potential for even more problems in the future. So, if oil could rally – really rally – it would be like a rookie defensive back making his first career interception the play of the year.

As the clock expired on Monday’s session, the bears were definitely deflated. One minute they had the brass ring in their hands and the next, well, we all saw the play.

So, Is That It?

The question of the day would seem to be if the decline in oil is over. Will crude now go the type of joyride to the upside that tends to accompany crashes along the way? And if so, won’t stocks naturally follow suit?

U.S. Oil Fund ETF (NYSE: USO) – Daily

Sure, the decline in oil might have hit bottom. Who knows really? And yes, if oil does indeed rally hard in the coming days (it certainly has room) stocks may go along for the ride. We all know how Wall Street’s elite love to play their correlation games with their fancy computers.

But What About the Buck?

However, there is one little issue that doesn’t quite jive with the Happy Days are Here Again theme being bandied about by the bulls – the dollar. Remember, at least part of the reason behind the crash in oil prices has to do with the rise in the greenback. As such, oil and stock market bulls will probably need to see a decline in the dollar for things to get truly interesting.

PowerShares US Dollar ETF (NYSE: UUP) – Daily

But that won’t happen, right? The ECB is going to start printing money. Japan is printing money. China will likely start doing something to stimulate their economy. And the Fed seem bent on getting rates up off the floor. So, as one currency trader put it to me, the only way the dollar can go is up.

Then again, the chart of the dollar does have that overdone feeling to it. So, if traders could find a reason to start selling dollars, the bulls could really be in business. We’ll see…

Turning to This Morning…

There are two primary stories to focus on in the early going on this fine Tuesday morning. First and foremost, oil is continuing to rally, with prices currently trading near $51 in the futures market. This puts the gain for the 3-day rally at approximately 14% and has many analysts now calling the bottom in the oil crash. However, oil bears contend that the current move is nothing more than an oversold bounce with short-covering being the primary driver. The other story garnering attention this morning is the rally in Greek stocks and bonds. Support for Greece markets stems from the more conciliatory tone out of Syriza as Finance Minister Yanis Varoufakis proposed swapping debt for growth-linked bonds. There was also talk of scrapping the plan to write-down Greek debt. The morning news has European bourses up strongly and U.S. futures pointing to a stronger open on Wall Street.

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