The market has gone very quiet as of Tuesday afternoon, which is exactly what we needed after the Dow Jones Industrial Average bounced more than 1,300 points off of the lows it hit on Friday.
It's very positive that there's so little giveback, but that might be because many market players are on hold ahead of the U.S. Consumer Price Index report that's due out Wednesday at 8:30 a.m. ET.
The CPI report hasn't been very important for a long time, but now that there's the slight aroma of inflation in the air, Wednesday's numbers are likely to be a major market mover. Regardless of whether the data come in strong or weak, they will likely trigger some more action in the volatility trade -- which will give us another dose of market movement.
One of the key issues that markets face now isn't just the economic news, but the fact that this news creates trigger points for moves in the volatility indices. That makes for a very unstable market. We have a respite for now, but that might just be the calm before the storm following Wednesday's CPI news.
For now, I'm doing a little portfolio adjustment by cutting a few laggards, and I'm still on the lookout for some new buys. Twitter (TWTR) is looking like it has big momentum again and has been showing a strong propensity for follow-through.
The market action is quite healthy overall, but the conventional wisdom holds that we'll have some retesting of stocks' recent lows. While that's logical, one thing we know about this market is that it rarely acts in conventional ways.
The lopsided run-up -- followed by the recent sharp drop-off from all-time highs -- aren't normal. So, I'm inclined to believe that the market will continue to act in an abnormal manner going forward.
It would be easy if the technical-analysis rulebook would apply in every case, but technical analysis in an environment like this is more of an art than a science. We need to understand the market's tendencies -- but be prepared for them not to work.