Thursday, February 16, 2012

Stocks are moving a bit higher this morning as the U.S. data (Philly Fed, Jobless Claims, and Housing Starts/Building Permits were all better than expected) appears to be trumping the global macro fears (Moody’s says it is ready to downgrade everything that isn’t nailed down and there is still some uncertainty over the bailout in Greece).

The bottom line is that stocks are now in the midst of a consolidation phase. And so far at least, the action gives us no reason to believe that the consolidation won’t be resolved to the upside. Remember, the textbooks tell us that markets tend to exit a sideways consolidation phase in the same direction the market was heading prior to entering the range.

So, with the bears’ efforts continuing to be on the weak side, our models tell us that it is best to give the bulls the benefit of any doubt here. However, given that this is an options expiration week and we have not only a holiday on Monday, but an important Greek meeting, markets may continue to waffle.

Now let’s turn to today’s model readings…

The Weekly Timing Model is the primary driver of our work and attempts to “call” the direction of the market for the week based on the strength of the model’s indicators. The overall model reading stayed in the Neutral zone again this week. This tells us to hold current positions and to lean toward the sidelines when in doubt.

The Daily Timing Model is dominated by trend and momentum indicators and is designed primarily to keep us in line with the overall trend of the market between weekly signals. As expected, the waffling in the market has caused some of our momentum models to flip-flop. Thus, the Daily Timing model has pulled back into the Neutral zone this morning.

Have a great day...

David Moenning
Main: 630-250-4700
Direct: 303-670-9761

HCM's Active Risk Management Model Readings

Our active risk management strategy, which is designed to keep us in tune with the market's primary intermediate-term trends, employs two different models: Weekly and Daily. This multi-model strategy is our primary guide to risk management and exposure decisions.

We start each week with the inputs from our weekly model (which itself is comprised of 7 model-of-models and 3 key trend indicators). From there, we let our Daily Model (which is primarily trend and momentum oriented) keep us alert to changes in the market's trend.

For more on the development of our active risk management system, feel free to consult our Research Report: Developing an Active Management System for the U.S. Stock Market

Weekly Model (Our Guide to Market Exposure for the Week)

Model	Signal	Current Reading	Score
Weekly Timing Model	Hold	Neutral	+1

Note: The range of the weekly timing model is +10 to -10. Buy signals occur at a reading of +3 while sell signals occur at -2.

In an effort to stay alert to changes in the market's primary trend, we monitor the internals of the market on a short-term basis via our Daily Market Model. The Daily Model is designed to keep us in line with the overall trend of the market between weekly signals.

The Daily Model (Our Guide to the Market's Shorter-Term Trend)

Daily Trend & Momentum Indicators	Signal	Rating	Score
Short Term Trend Rating:	Buy	Moderately Positive	+0.75
Int. Term Trend Rating:	Buy	Positive	+1.75
Trend/Breadth Confirm Model:	Buy	Moderately Positive	+0.80
Momentum Model:	Buy	Moderately Positive	+1.33

Daily "Early Warning" Indicators	Signal	Rating	Score
Overbought/Oversold Models:	Sell	Moderately Negative	-1.20
Sentiment Rating:	Sell	Moderately Negative	-1.00

	Signal	Rating	Score
Daily Model Score:	Hold	Neutral	+2.83
(Please note that the Daily Model Score is weighted and not a summation of the individual model scores)

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management (HCM) 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 of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Posted on 2/16/2012 at 11:06 AM