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: Holiday Seasonality In Play, But…

The seasonality surrounding the Thanksgiving holiday tends to be modestly favorable. While the indices do tend to advance the day before and the day after Thanksgiving, the size of the gains are not terribly meaningful. However, the historical odds do seem to favor the idea of the bulls continuing the record string of days in which the S&P 500 closed above its 5-day moving – which currently stands at 28 and counting.

It is also worth noting that the advance has not exactly been robust over the last two weeks. While stocks have managed to move higher almost on a daily basis, it would appear that a lack of selling pressure is more to blame for the relentless march to new highs than a stampede of buyers.

Turning to this morning, there is more talk of stimulus and QE from places like China, Japan, and Europe. ECB Vice President Constancio said Wednesday in speech that the central bank will be able to gauge in Q1 whether it needs to get more aggressive by expanding asset purchases to sovereign bonds. So, despite Germany’s opposition to the idea, it appears that QE is indeed coming to the Eurozone if the economy continues to stagnate.

In Japan, BoJ officials defended the recent expansion of their QE program, saying that inaction would have been tantamount to breaking the bank’s commitment to “do whatever it takes” to get inflation up to the 2% target range.

And in China, headlines indicate that a system-wide rate cut as well as additional stimulus measure aimed at boosting the economy could come soon. China stock markets extended their recent rally to a fifth straight session, with the Shanghai Composite up nearly 5% this week.

Here at home, investors got some economic data to chew on before the bell with Durable Goods, Weekly Jobless Claims, and Personal Income/Spending all coming in below expectations. As such, U.S. stock futures have given up much of their early gains and are now pointing to a modestly higher open on Wall Street.

Current Market Environment

Yesterday’s economic data may present a decent summary for the overall stock market environment. First, the GDP growth rate came in at +3.9%, which was well above expectations and the first look. However, the Consumer Confidence numbers continued to disappoint. So, while the backdrop for the overall market continues to be positive, there always seems to be something to fret about. This is starting to show up in our market models as well. For example, while the models remain positive on balance, the momentum components are basically limping along in neutral. Therefore, investors should continue to side with the bulls but remain flexible.

Looking At The Charts

To say the market is overbought and due for a pullback would definitely be an understatement. It has now been 28 days since the S&P 500 closed below its 5-day moving average. As such, traders are likely on high alert for any kind of negative inputs at this time. In other words, should something negative come out of the woodwork, it is likely that all of the millisecond trend following algos will start heading in the same direction. However, traders looking for a pullback to provide an entry point to the traditional year-end rally have been sorely disappointed of late. The bottom line is we would look for a test of the 2050 support level at a minimum at some point in the near term.

S&P 500 – Daily

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