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The goal of this report, which can oftentimes be classified as a meandering morning market missive, is to identify the primary drivers of the stock market. To be sure, there are certainly times when the drivers of the action are actually quite easy to identify. And then there are days like Tuesday, where there was nothing terribly obvious to the naked eye.

While the end result didn't appear to be meaningful (the DJIA and S&P 500 indices each lost 0.2 percent, the NASDAQ actually eked out a slight gain), sometimes how the action unfolds on an intraday basis can speak volumes about what is actually happening in the market.

Algos Back At It

After one of the least volatile days of the year on Monday, the bottom line is the algos got back to work on Tuesday. Although there wasn't much in the way of economic inputs to consider (the NFIB Small Business index came in below expectations), the boys and their computer toys did get some "taper" headlines to work with after the market opened.

In what was clearly an all-algo-all-the-time affair, stocks were pushed and pulled in both directions based on whatever came out of a Fed governor's mouth. Never mind the fact that most of what passed for "news" yesterday was anything but, the algos were armed and ready to react - and move the S&P 5 or 6 points each time within a matter of minutes.

First Up, Richard Fisher

The first to hit the wires with comments was Dallas Fed President Richard Fisher, who, is set to become a voting member of the FOMC next year.

As usual, Mr. Fisher suggested that the Fed can only do so much and should step away soon. Fisher reminded the audience that the QE program cannot continue forever. In addition, the Dallas Fed President raised concerns about the size of the Fed's balance sheet and the challenges it poses, adding that QE "becomes riskier by the day."

Although Mr. Fisher's views are widely known, the algos apparently got the headline they were searching for (at the speed of light) and stocks moved down in a straight line.

Now Batting: Dennis Lockhart

Next up was Atlanta Fed President Dennis Lockhart. Not surprisingly, the generally hawkish Mr. Lockhart told the press that he "would not take [the taper] off the table at this time" and that the FOMC could very well begin pulling back on its $85 billion a month bond buying program in December.

Lockhart also said the recent Nonfarm Payroll report data was encouraging, but not "decisive" evidence of a sustainable improvement in the labor market. Mr. Lockhart added that he wanted to see inflation accelerate toward the Fed's 2% goal before beginning to taper.

And yes, the algos noticed Lockhart's comments about the potential for a "Dectaper" - and not in a good way.

And Finally, There Was Kocherlakota

Then there was Minnesota Fed President Narayana Kocherlakota. Kocherlakota first said market speculation about tapering is "puzzling" in the light of the current economic challenges. In other words, he didn't understand why folks are concerned about the Fed "tapering" when the economy isn't exactly hitting on all cylinders.

On that note, Kocherlakota added that tapering now would produce a drag on an already slow economy. And finally, he repeated his recent call to cut the Fed's unemployment threshold to 5.5% (from 6.5%) and reiterated his feeling that the Fed must be ready to do more to stimulate economic growth. A dove indeed.

As you might have guessed, the algos once again reacted - this time to the upside.

What's The Takeaway?

So what, if anything, should investors take away from a day like Tuesday?

The first point is to understand that after the bulls have enjoyed a decent move higher, the market tends to consolidate for a spell. During these sideways, range-bound periods, buyers tend to "stand aside." In short, everybody knows stocks have run and become overbought in the process. As such, anyone looking to add exposure will likely hold off until some sort of pullback occurs.


(Click to enlarge)

The key is that this leaves the market vulnerable to selling pressure - and also to algo-driven activity such as was seen yesterday. Remember, the goal of an "ignition algo" is to start a trend that other algos will then jump on to. And the bottom line is this is what appears to be transpiring now.

The best course of action then is to hang tight and watch carefully for signs that the "consolidation" phase may be morphing into something worse. On that score, the key level to watch would be 1740 on the S&P 500 cash. Above this level means that the consolidation continues. Below it, well... maybe not so much.

Turning to This Morning ...

The mood appears to be turning dour in the early going in response to a combination of disappointment out of China's planning session and growing deflation concerns in Europe. The foreign markets are lower across the board and the U.S. futures have followed suit, pointing to a decline at the open.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell ...

Major Foreign Markets:

- Japan: -0.15%

- Hong Kong: -1.91%

- Shanghai: -1.82%

- London: -1.38%

- Germany: -0.69%

- France: -0.84%

- Italy: -1.25%

- Spain: -0.66%

Crude Oil Futures: +$0.38 to $93.42

Gold: +$4.80 to $1275.40

Dollar: higher against the yen and euro, lower vs. pound.

10-Year Bond Yield: Currently trading at 2.751%

Stock Futures Ahead of Open in U.S. (relative to fair value):

- S&P 500: -6.64

- Dow Jones Industrial Average: -62

- NASDAQ Composite: -10.83

Thought For The Day ... Nothing is more honorable than a grateful heart -- Lucius Annaeus Seneca

Positions in stocks mentioned: none