Posted | by David Moenning |

Well, here we go again. Just when I had described the recent five-day pullback as "orderly" all heck breaks loose and the stock market makes headlines again for producing big, red numbers.

As long-time readers know, I tend to obsess over the drivers of the stock market action. I figure that if I can stay in tune with why Ms. Market is doing what she is doing from a short-term perspective, I might have a fighting chance of staying on the correct side of the major moves.

So, let's go to the videotape and see what we can learn.

Big Data

Yesterday's headlines centered around Facebook (NYSE: FB) and one might be led to believe that the social media giant's difficulty with data was the key to the intraday dive of nearly 500 points on the DJIA. However, upon further review, there was a lot more happening than the 6.8% decline in FB.

To be sure, Facebook was part of the problem. Shares fell after reports indicated that political analytics firm Cambridge Analytica had been able to extract data from 50 million people's profiles without their consent. And while the optics of this are bad enough, the fact that Cambridge Analytica worked on Facebook ads with President Donald Trump's campaign in 2016 didn't help the situation.

At issue here is more than just data security. There is also the public's perception of how "safe" their data is on social media in general. Oh, and talk of more government regulations on the likes of Facebook, Google (NASDAQ: GOOGL), Twitter (NASDAQ: TWTR), etc., certainly creates uncertainty in investors' minds.

Staying with the tech theme a moment longer brings us to the headlines that Apple (NASDAQ: AAPL) is working on building its own displays to replace Samsung's screens and a driverless Uber killed a pedestrian. Cue another couple reasons to sell something in the tech arena.

The Political Circus

Then there is the turmoil in Washington. Although the markets appear to be getting accustomed to the President's Tweet-storms, this weekend's tirade got people's attention. Couple this with the firing of former FBI deputy director Andrew McCabe two days before his retirement and the corresponding discussion of obstruction of justice, the Mueller investigation, and the revolving door in the administration, and you have the makings of a political circus.

Now mix in the tariff-talk and the concerns about trade wars on multiple fronts including China and the EU, and it is little wonder that investors might be a little anxious about the political climate.

Before we leave the subject, I'd be remiss if I didn't mention the fact that we are facing another government shutdown on Friday. Super.

Powell on Tap

Next up is this week's Fed meeting, which will include Jay Powell's first press conference as the new chairman. In case you've been sleeping in a cave, Powell & Company are expected to announce another rate hike at the conclusion of the meeting on Wednesday. Of particular interest to the markets will be the updated economic forecasts and "dot plots." The bottom line is markets are expecting Powell's crew to sound a bit more hawkish than they have in the past.

Speaking of rates, it is worth noting that the yield on the U.S. Two-Year rose again yesterday and that the yield curve continues to flatten. When coupled with the recent economic data, which has been coming in on the disappointing side, this can provide investors a reason to fret about the state of the economy.

From an investing standpoint, this alone might be reason enough for buyers to stay on the sidelines until Mr. Powell speaks tomorrow afternoon. So, with buyers possibly sitting on their hands, the edge goes to the bear camp from a short-term perspective.

The Technicals

And finally, we come to the charts. The good news is the NASDAQ Composite bounced right at its 50-day moving average yesterday in a classic example of support on the chart. However, the news wasn't so great elsewhere as the DJIA broke down from a wedge formation and the S&P 500 went through its 50-day like a hot knife through butter.

The key here is the action gives the bears reason to believe that some further downside exploration might be in order.

So, there you have it. A veritable laundry list of reasons to sell stocks. Or, at the very least, a host of reasons not to buy right now. As such, my view is that we've got a range-bound market on our hands and that "riding the range" (as in selling the rips to the top end and buying the dips to the low end) would appear to be the way to play the game for a while.

Thought For The Day:

No one has ever made himself great by showing how small someone else is. - Irvin Himmel

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: FB, GOOGL, AAPL - 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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