Good morning and welcome back. Stocks are rockin' this morning on the back of the latest "Brexit" vote, which shows the "stay" camp appears to be gaining traction. The question, of course, is if the early ramp will last as the vote across the pond doesn't happen until the 23rd. So, while we've got some time let's jump in and do our weekly review of the state of the market and our major market indicators/models.

As usual, the first stop is a review of the price/trend of the market. Here's my take...

• The S&P is currently in a short-term downtrend
• However, the strength of the Monday open could easily move the trend back to neutral
• Bears note that there is a potential double-top formation occurring
• A break below 2040 would cause technicians to say the formation is confirmed
• Both the 150-day and 200-day moving averages currently sit around 2020 (2021 and 2017 respectively)
• So... 2020 is the really important support zone that the bulls need to hold during any additional weakness
• 2120 is the upside resistance (which will likely be tested should the Brexit not happen)

S&P 500 - Daily

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From a longer-term perspective (e.g. looking at a weekly chart of the S&P 500)...

• Nothing new to report here...
• 2100 still intermediate-term resistance
• 2135 still long-term resistance
• Bottom line: Market still waiting for uncertainties to be resolved

S&P 500 - Weekly

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Here's the view of the "state of the trend" from our indicator panel.

• The bad news is that our cycle composite is pointing lower this week
• The good news is the composite then turns positive again and remains largely positive until mid-August
• The short-term Trend & Breadth indicator is currently negative, but a big pop today would likely reverse it back to neutral.
• Since 2007, the negative and neutral modes for the T&B model has actually been more profitable due to the propensity for the market to V-Bottom. As such, what were once considered "momentum" indicators now tend to be solid "mean reversion" signals.
• The overall rating of the board is neutral. But it could perk up with a Brexit failure.

Next up is the momentum indicator board...

• This board is also mixed. But again, this could easily change with just a little price improvement.
• The positive here is the more important indicator boxes remain green.
• The bottom line is there is little real momentum at this time.
• But important that Bears haven't been able to do much with their recent opportunity.

Next up is the "early warning" board, which is designed to indicate when traders may start to "go the other way" for a trade.

• Stocks are oversold from short-term perspective.
• Stocks are modestly oversold from intermediate-term perspective.
• Our VIX indicator flashed a buy signal last week - this suggests stronger than normal returns in the ensuing 1, 2, and 4 weeks after the signal is given. (However, this indicator can also provide multiple buy signals.)
• Sentiment indicators did not reach overly negative levels.
• So, no "fat pitch" buy signal at this time from an early-warning standpoint.
• But these indicators do suggest that the odds do favor the bulls in near-term.

Now let's move on to the market's "external factors" - the indicators designed to tell us the state of the big-picture market drivers including monetary conditions, the economy, inflation, and valuations.

• Both monetary models have upticked a bit over the past week.
• The Absolute Monetary model is now moderately positive.
• The Relative Monetary model remains in neutral mode but has improved.
• The improvement is due to the weakness seen in the economy and the lowered expectations for rate hikes in near-term.
• Economic model's internal components have downticked a bit but remain in moderately positive mode
• Inflation model has upticked.
• Overall model reading remains below optimal levels. I.E. Market definitely not hitting on all cylinders.

Finally, let's turn to our favorite big-picture market models, which are designed to tell us which team is in control of the prevailing major trend.

• The State of the Tape model is moderately positive. But as I've been saying, I would really like this to be higher if the bulls are to have a shot at a strong move.
• The big change over last couple of weeks has been the move down in the External Factors model. While the model is still moderately positive, the trend of the model is now down.
• The good news is there is a lot of green on this board and that the historical returns have been slightly above the historical average.

The Takeaway...

In last week's review, the overall theme was to buy the dip. And unless the Brexit actually occurs, this appears to have been the appropriate strategy. However, it is important to note that this market has very little real momentum, the economy isn't great, and there are a handful of uncertainties remaining. As such, we should probably expect to see stocks continue to "muddle along" until some of the issues/worries are resolved. But make no mistake about my view; I continue to believe that the current sideways action will be resolved to the upside. The key question, of course, is when.

Current Market Drivers

We strive to identify the driving forces behind the market action on a daily basis. The thinking is that if we can both identify and understand why stocks are doing what they are doing on a short-term basis; we are not likely to be surprised/blind-sided by a big move. Listed below are what we believe to be the driving forces of the current market (Listed in order of importance).

1. The State of the "Brexit"
2. The State of U.S. Economic Growth
3. The State of Fed Policy
4. The State of the Stock Market Valuations

Thought For The Day:

"He who asks is a fool for five minutes, but he who does not ask remains a fool forever." - Chinese Proverb

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Here's wishing you green screens and all the best for a great day,

David D. Moenning
Founder: Heritage Capital Research
Chief Investment Officer: Sowell Management Services

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Disclosures

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 is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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