On Wednesday morning, the market gapped lower following a mediocre conference call from Microsoft (MSFT) and then spent the rest of the day recovering and closed flat. On Thursday morning, the market gapped higher following a strong conference call from Tesla (TSLA) and is now trending lower and moving back to flat.
The net result is little movement, but it illustrates the ongoing battle between bears and bulls. The reaction to the economic news that hit this morning reflects the issue that is causing the choppy action.
GDP, unemployment claims, and durable goods reports were all better than expected. A couple of months ago, there would have been a negative reaction to that news because it is inflationary, but the reaction this morning was positive because it creates hope that the Fed really will be able to create a soft economic landing.
The market is confident that inflation is now trending down, and it is quite optimistic that the Fed will start cutting rates late in the year after two more 0.25% hikes at the next two FOMC meetings. The market believes that the Fed's hawkish comments are just posturing to prevent an overabundance of economic confidence that could fan the flames of inflation.
The bullish scenario right now is that inflation is dropping, the Fed will make a dovish pivot soon, and there is enough economic strength - particularly in jobs - to avoid an ugly recession. That is the argument, but the bears think that it is far too optimistic, and they are expecting to see sharper drops in corporate earnings and employment that will drag the market back down.
Currently, the bulls and bears are battling to a standstill, but the bulls have some positive momentum and are enjoying a good reaction to earnings, although they have not been all that great. There are plenty of folks sitting on the sidelines with heavy cash positions, and that is providing support as well.
I'm doing very little while I wait for some stronger movement to create a new set of opportunities. Most of the price action I see is quite random. Charts are too extended to chase, but they are too strong to short at this point.
This does not make for very entertaining trading, but we have to be ready for stronger moves as the economic debate intensifies.
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