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Daily State of the Markets Publishing Note: I am traveling a fair amount over the next two weeks and my schedule looks especially difficult next week. Thus the “Daily State” report will be published when time permits. Good Morning. One of the most interesting/difficult aspects of trying to manage money in the stock market is the fact that the game is always changing. And I’m here to say that one of the most dramatic changes I’ve ever witnessed in my 24+ years in this business has occurred in the past four months. In short, never before has the importance of being flexible been more evident as this market morphed from a violent, bucking bronco that moved hundreds of points on the latest headline or rumor out of Europe into a steady-Eddie, Energizer Bunny. Ever since I started managing “other people’s money” in 1987, I’ve felt it was important to have a investment process that was repeatable. And for me the first step in the process has always been to identify the environment that you are dealing with. The thinking is that if you know what type of beast you are doing battle with; you might have a shot at choosing the right weapon with which to fight. For example, investors have likely learned (the hard way) that utilizing the same pedal-to-the-metal approach that was all the rage in the late 1990’s was a recipe for disaster during the ensuing Tech Bubble Bear that took a massive toll on tech and growth stocks from 2000-2003. So, while margined dotcom’s were the weapons of choice in 1999, it was cash, value stocks, and bonds that made for better holdings for the next three years. In looking at the current market environment, it is clear that the market environment has changed. The violence that was so pervasive from late-July through mid-December is gone. In its place is a relentless march higher with nary a hiccup seen over the past ten weeks. From an historical perspective, we saw the bull that began on March 10, 2009 end in a violent fashion last August when what will be technically defined as a cyclical bear market occurred. And since the S&P has now moved up more than 24% from the October low, it is important to recognize that we’ve now got a cyclical bull market on our hands. So, does this mean we can start doing something else besides watching every headline out of Europe, China and the Fed? And can we perhaps just let our chips ride this wonderful wave for a while? Or will the current joyride end with a bang once Dow 13,000 is eclipsed? In all honesty, I’m not sure (again, I’m sorry to report that my crystal ball is in the shop). What I can say is that the average cyclical bull market that occurs within the context of a secular bear cycle (the one that began in 2000), tends to last about a year. And in terms of what we might be able to expect out of this bull move – from a big-picture standpoint – it is worth noting that the median gain for cyclical bulls within secular bears is something north of 75% and the average gain is over 105%. But, before you run out and start buying UPRO’s on margin, we should remember that history is only a guide. If one looks closely at the data, you will find that the actual returns for all the cyclical bulls that occur within a secular bear are all over the map. For example, since 1960 there have been five cyclical bulls with returns greater than 85% (two over 100% and one over 290%) and six bulls that sported returns of less than 35%. Thus, given that this market changed costumes so quickly and that there are still a few macro issues out there, one could argue that the current bull may not make it to the mean or median columns. However, I like to stick with what is instead of worrying about what could be. Therefore, we need to recognize that the market has changed from a news-driven bear to a new cyclical bull. And the key going forward will be to try and identify anything to indicate that our current bull is about to make yet another quick costume change. Turning to this morning… Asian markets were higher overnight, European bourses are mostly higher, and U.S. stock futures are pointing to a modestly higher open on Wall Street. However it is worth noting that oil prices continue to rise, with futures currently trading above $108 this morning. On the Economic front… We will get the University of Michigan Consumer Sentiment report at 9:55 am and New Home Sales at 10:00 am eastern. Thought for the day… Best of luck on this Friday and be sure to enjoy the weekend! Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: None For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com !========> The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. !========> |
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