For the past four days, this missive has offered up a baker’s dozen reasons why it might be time to be cautious on the stock market. It would appear that Thursday’s action proved to be an exclamation point on the theme.

The Dow plunged 317 points. The S&P 500 had its worst day in more than three and one-half months, losing 2.0 percent. The NASDAQ, which has emerged as a leader in recent weeks, gave back 2.09 percent. Midcaps dropped 2.02 percent and finished July with a loss of more than 4.3 percent. And the usually strong small caps (the Russell 2000) got smoked for 2.31 percent on Thursday and 6.41 percent during the month of July.

While bad days in the stock market aren’t exactly new, they have been few and far between for the past couple of years. And what made Thursday’s dance to the downside notable was the fact that there really wasn’t any true catalyst to get the bear party started. Nope, this decline appeared to be the culmination of all those “issues” we’ve been talking about every morning this week.

Recall that we’ve talked about a variety of worries facing this market including: The Fed’s exit, percolating inflation, the “nearest neighbor” chart pattern, the action in high yield bonds, the readings of our market environment models (which, by the way, did a nice job of telling us to take our foot off the gas in early July and to get out of high yield bonds altogether), the age of the bull run, the cycle projections, the mounting geopolitical issues, the technical divergences, and the fact that the most recent run to new highs qualified as a “no mo” event.

The bottom line is there have been plenty of warning signs. Plenty of reasons to rein it in a bit. And plenty of time to select your favorite risk management strategy.

The Question of the Day

After the type of shellacking that stocks took on Thursday, the question of the day is if the long-awaited meaningful correction has arrived. Or will this turn out to be another 4-6 day wonder like so many of the pullbacks seen this year have turned out to be?

As the chart below illustrates, the two-day trash jobs this year haven’t always led to further selling – especially since the end of January.

Read the rest of the report…


David Moenning

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David Moenning is the founder and chief investment strategist for, a website dedicated to investor education and portfolio analysis. Mr. Moenning is also President of Heritage Capital, 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.