Posted | by David Moenning |

Word that Warren Buffett's Berkshire Hathaway had purchased a cool 75 million shares of Apple (NASDAQ: AAPL) during the rather bumpy ride that was the first quarter of 2018 certainly improved the mood on Wall Street. Most credit "The Oracle of Omaha" with Friday's big rally as well as Monday's continuation move to the upside. Well, until another tweet from the White House put a damper on the mood, that is.

There was reason to cheer on Monday as the S&P 500 appeared to be breaking through a cluster of technical resistance as defined by several important moving averages and the closing-basis downtrend line that has been intact since January 26th. Had the move succeeded, it would have put a dent in all the downward sloping triangle talk the bears have been so fond of spouting off about lately.

The impetus for the improving technical picture was clear. Mr. Buffett's decision to add to Berkshire Hathaway's already outsized position (Berkshire is the largest owner of AAPL by a significant margin) served as a reminder that there are investors out there who look for values.

The thinking was simple. With the "fast money" busy fretting over slowing iPhone sales, Buffett's decision to pounce on the opportunity spoke volumes about how long-term investors think and about the current environment. Instead of worrying about the next pullback in the stock, Buffett "bought the dip" of a company he apparently loves. On that note, when asked over the weekend how much of Apple Berkshire would like to own, Buffett replied succinctly, "All of it."

Such talk reminded the market that not everybody is driven by the latest headline, rumor, or tweet. No, there are actually players out there who focus on the fundamentals. And with Buffett saying that he'd choose stocks over bonds all day long here, well, lots of folks started to feel better about the next move in the market.

And with Marko Kolonavic (aka "the man who moves markets") saying that the bottom of the current corrective phase was in and that his firm's (JPMorgan - NYSE: JPM) 2018 target for the S&P remained at 3100, it appeared that investors were looking on the bright side Monday.

Well, right up until another tweet from the White House caught the attention of the high speed algorithms, of course. With the major indices moving to new highs around 2:30 pm eastern yesterday, it looked like the bulls were making a break for the border. The downtrend was breaking. The S&P was breaking through its 50-day. And it looked like a full-fledged attack on the 2715 resistance was up next.

But then Trump tweeted that he would announce his decision on whether or not to stay in the Iran nuclear deal at 2:00 pm today. Oil reversed, and stocks followed suit. To the tune of about 200 Dow points. Suddenly, the improving technical picture looked like just another failure on the charts. The downtrend was still intact, and the S&P was back below its 50-day. Super.

At issue here is whether or not Mr. Trump will make good on another campaign promise and "pull out" of the Iran Nuclear deal that the Obama administration put in place with China, France, Germany, Russia and the U.K. In typical fashion, Trump has blasted the agreement as a "bad deal" and is apparently looking for ways to improve things for the U.S.

My guess is that the algos didn't really know why such a change could/would be bad for the economy or stocks. But that rarely stops the millisecond trend-followers from initiating a reversal.

So, today we will find out what the humans who program the computers have to say about the situation. Currently, futures are lower as stocks await Mr. Trump's decision.

But from a big-picture standpoint, I personally agree with Mr. Kolonavic. I think many of the excesses that were in the market as the year began have been worked off and that many of the market "risks" (low volatility, the Fed, and valuations) have subsided, or at the very least, improved. And while I have no idea whether the indices will wind up making a new low in the process, I do believe the current sloppy period will eventually be resolved to the upside.

Thought For The Day:

If your ship doesn't come in, swim out to it. - Jonathan Winters

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: JPM - Note that positions may change at any time.


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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