The market action is becoming choppy and sloppy as traders await the FOMC interest-rate decision on Wednesday afternoon at 2 p.m. ET.
On Tuesday, the Nasdaq and technology stocks led, and a spike in the S&P 500 in the last 10 minutes of trading drove it to a new high. Under the surface, though, the action had a negative bias with around 3,400 gainers to 4,400 decliners.
The good news is that there continue to be some hot pockets and stock-picking is still the primary focus, although there isn't much sustained momentum. A few meme names such as AMC Entertainment (AMC) and Corsair Gaming (CRSR) attracted attention again (read Jim Cramer's column here), but strength was primarily in bitcoin-related names, some biotechnology stocks, and a few growth names like Crocs (CROX) , which was my Stock of the Week.
The issue that is causing this messy action is the potential for the Fed to take a more hawkish view of inflation on Wednesday. It is very clear that inflationary pressures have been growing, but the central bank has so far managed to characterize it as "transitory." There is some concern that the Fed will have no choice but to acknowledge that inflationary readings are higher than expected and may need to hint at the inevitable tightening that will occur sooner or later.
Bonds reversed down Monday but are still holding up pretty well. When they fell during the month of February, it caused some very significant rotation action out of growth and into value. That rotation was very tough on speculative trading, and that is a concern if the Fed changes its tune on Wednesday.
Currently, the Nasdaq is back in favor, and technology and growth stocks are looking better. The ARK Innovation ETF (ARKK) had a good day and is finally back over its 50-day simple moving average for the first time since April 26.
While stock-picking is still the focus, the challenge is finding some names with sustained momentum. Too many of the movers lately are "one and done." They fizzle out quickly as they move out of attractive technical patterns. Keep that in mind as you look for entries.
We have a mixed start again as the market awaits retail sales and PPI numbers.