Can Bulls Continue to Put the 'Squeeze' on Bears?

The most important market question on Thursday morning is whether stocks can shrug off more economic news that suggests inflation is staying elevated and the Fed is likely to raise rates higher for longer.

In recent weeks, the market has crushed economic bears that keep pointing out the potential problems that lie ahead. The price action has stayed very strong, and to a great degree, the bullish argument is little more than a warm embrace of strong momentum.

The market's willingness to ignore all the very obvious negative arguments is infuriating many bears but the fact that the bears are so insistent is part of the reason that the market is staying so strong.

Thursday morning's producer price index (PPI) came in quite a bit higher than expected, interest rates are higher on the news, bonds are weak, and the dollar is stronger. Typically this trifecta has led to pressure on stocks, but the dip buyers are jumping in once again and already have the indexes well off the early lows. Squeeze action is developing once more, but we will see if the bulls still have the juice to overcome the negative economic narrative.

An intraday reversal and a close at the lows would be significant at this point as we are heading into a three-day weekend and the second half of February, which historically is a very poor seasonal period.

The biggest problem with the bearish argument is that it is too logical and obvious. The overly confident bears keep on being trapped, creating squeeze action and making the bulls even more confident.

I'd like to be doing more stock-picking but this is currently a macro-driven market and we have to wait for some downside volatility to create better stock-picking opportunities. I'm eyeing an index short but staying patient and watching to see how well intraday support holds up late in the day.

At the time of publication, Rev Shark had no positions in any securities mentioned.