Stock market bulls were encouraged by the action on Tuesday, but the big question now is whether they will be able to build on the action.
A sharp drop in oil, energy and commodities triggered a shift in a market that has been intensely focused on inflation. There is growing consensus that the economy is now cooling off fast enough that inflation already may have peaked. There is hope that a likely recession will not be too deep and already has been discounted to a great extent.
On Tuesday, there was a furious rotation out of oil, gas, commodities and some consumer cyclicals and into growth, technology, biotechnology and other stocks that have been under intense pressure due to interest rate fears.
This sort of aggressive rotational action tends to fill bulls with hope, but the problem is that these recent shifts have not been sustained. There is a big one-day shift and then the action fizzles out as market players continue to contend with a host of macroeconomic concerns.
While action such as we had on Tuesday helps to improve charts in many of the hardest-hit groups such as biotechnology and growth, it is still very early in development. These relief bounces often occur in bear markets and will cause many folks to conclude prematurely that the worst is over.
Oil is already rebounding here on Wednesday morning and the rotational action that triggered the move on Tuesday appears to have ended. That doesn't mean we won't see more upside in yesterday's hot sectors, but this is a skeptical and uncertain market and it is going to take time for fear of missing out to build.
I'd like to be more bullish in the short term, but the charts still need work. I'll be hunting for some new entries, but so far I'm not seeing much that I want to add.