To be sure, this market has been all about oil recently. While there definitely have been other distractions, it has become quite clear that Wall Street’s trading machines had joined the movements of oil and stock prices at the hip. And although one could argue that the dollar and bond yields are also part of the correlation trade that has been occurring day in and day out this year, the bottom line has been that when oil went down, stocks went down, and vice versa.
But on Wednesday afternoon, it looked as though someone had flipped the switch on the correlation trade. Stocks were suddenly moving higher late in the day while oil was holding to a pretty big dive (to the tune of -8%).
Apparently none other than the Oracle of Omaha himself had provided some upbeat words about the outlook for the good ‘ol U.S. stock market.
Just like that, stocks appeared to decouple from oil.
Just like that, the S&P 500 looked like it had broken out of a long, consolidation pattern.
And just like that, the bulls appeared to be back and the bears had blown the best opportunity they had seen in a very long time.
Wait, What? Seriously?
But then it happened. With stocks at the high of the day, the S&P started to reverse. And while reversals in both directions of 5-10 points happen all the time in the stock market these days – and usually for no reason whatsoever – this reversal appeared to be different.
This bout of algo-induced selling wasn’t the usual fare. No, this one had some teeth to it. This time the S&P plummeted 10 points in just 6 minutes. And after 11 minutes, the venerable blue chip index looked like it was falling off a cliff on the chart, diving nearly 15 points. And to anyone paying attention, it was clear that something was up.
David Moenning is Mr. Moenning is President of Heritage Capital Research, a privately owned, investment research firm. Heritage focuses on active risk management and an “own the best and ignore the rest” equity selection strategy.
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Positions in stocks mentioned: none
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.