A Series of Strong Closes Is Positive, But Technical Conditions Are Dicey
The big issue now is whether CPI and the Fed decision will serve as a catalyst for a shift in the market.
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The senior indexes are churning near all-time highs as market participants await the CPI report and the Fed interest-rate decision on Wednesday. The dollar is jumping against the euro due to political unrest in France, and bonds are seeing higher levels of volatility.
Technically, the market continues to hold up very well, but upside momentum is limited, and speculative trading has cooled. The meme action triggered by GameStop GME has fizzled out, and both Apple AAPL and Nvidia NVDA are seeing some profit-taking after big runs into significant news.
Stocks shook off a nervous start on Monday and had a strong finish for the sixth day out of the last seven trading sessions. Late-day strength has consistently saved the market lately, and we will have to watch for a shift to trigger a change in market character. The conventional wisdom is that the "smart money" buys the close and that is what matters most right now.
The big issue coming up is whether CPI and the Fed interest-rate decision will serve as a catalyst for a shift in the market. The market typically has a favorable reaction to the Fed, but there is unlikely to be anything surprising at the meeting Wednesday. The central bank will likely need more data to push them to develop a clear bias for or against rate cuts.
It is currently a difficult market to trade in as there is still strength but limited momentum. It feels like the action is toppy, although there isn’t any weak price action to confirm a shift in trend. There is little earnings news right now, and strong fundamentals in the Magnificent Seven names are not driving up the group as they did during the earnings season.
It isn’t a bad market environment, but it isn’t very enticing either. My game plan is to watch stop levels carefully, trade in shorter time frames, and stay very selective with new entries. I’d like to be more aggressive with speculative trades, but the conditions are not supportive of that approach right now.
We have a weak start, but it is the close that matters.
At the time of publication, Rev Shark had no positions in any securities mentioned.
