The market mood improved on Thursday morning following a strong earnings report from Nvidia (NVDA) and hope the market has already fully discounted the Fed's recent hawkishness.
It is now anticipated that there will be hikes of 0.25% at the next three Fed meetings in March, May, and June, but there still is a possibility that the next increase could be 0.50% depending on the economic data in the next few weeks.
There has been some technical damage to the indexes over the last week, and the uptrend is under pressure. However, the bulls have some hope that support will be found as the S&P 500 sits right at its 50-day simple moving average at 3979.
Whether or not support holds is likely to be determined by the PCE report on Friday morning. This is the Fed's preferred measure of inflation and will influence whether there is a 0.5o% or 0.25% hike at the March 22 meeting. The main inflation issue remains labor-related, so the market will also be watching the weekly unemployment claims report that is released at 8.30 am ET.
Technically the bears currently have the advantage, but what I'm watching is breadth and some signs that individual stocks are not highly correlated with the index action. Nvidia's strong report is boosting the technology sector and is causing speculation again in the artificial intelligence (AI) names. Small-caps showed some relative strength on Wednesday, which is a good sign, but what I want to see is a longer list of stocks moving more than 10%.
If you are a stock picker, flat market action can present some of the best trading as traders gravitate to a smaller group of names with strong moves. If the market pressure is too correlated, then stock picking doesn't work as well, so it is important to watch for these pockets of speculation to develop.
The most important thing to remember is that the overall technical picture is negative. There will always be lots of folks loudly trying to predict a market bottom, but it is far more productive to stay focused on price action and stay patient until it shows a change in character.
I expect a choppy session as we await the PCE news on Friday morning.