The CPI numbers came in higher than expected, but they were lower than last month, and we have some buy-the-bad-news action as market participants are betting that the worst has already been discounted.
Many traders were hoping that CPI would come in lower than expected and spark a rally on the basis that inflation had peaked. That was the obvious trade but buying the weakness on a miss was secondary thinking, and that is working to some degree so far.
There are many trapped longs in this market, and that is making it harder to develop a strong bounce. There is a strong inclination to sell into even minor strength, but eventually, the flippers and short-termers will relent, and that is when we should see some fear of missing out to drive a better bounce.
The conventional wisdom is that there are two kinds of markets - bull markets and bear markets. I tend to think of markets in a different way. There are markets that are driven from the top-down and those that are driven by fundamentals and stock picking. Most bear markets are driven from the top-down and make stock picking meaningless. Good valuations offer no protection, but eventually this sort of action creates huge opportunities when stock picking does start to work again.
Currently, there appear to be outright liquidations of many stocks and especially the smaller secondary names. They are sold without any regard for their valuations because people simply want out of the misery. That sort of selling is looking very extreme in some areas right now, but it takes a while to develop.
An example of a stock that is suffering from liquidation without regard to valuation is Ammo, Inc. (POWW) . Nothing in this business has changed recently. In fact, they can sell everything they manufacture, and prices continue to rise. They have a new factory coming online within a few months. However, it is a very small company, and there isn't any big money looking at buying 'value' like this right now. As a consequence, it is dumped into a bidless environment. Eventually, it will recover, but the timing isn't easy, and it requires patience.
I am looking for this bounce action to continue higher at this point, but I'm not rushing to buy longer-term positions.
