The market caught many folks by surprise on Thursday as it exploded higher after shrugging off reduced guidance from Microsoft (MSFT) and worries about inflation and the economy slowing.
It looked like it was going to be a soft day of action, but when the sellers were unable to create sustained pressure, the buyers stepped up and chased stocks higher all day. The action created some fear of missing out, which helped to drive the action.
While the technical action is now looking much better, with both the Nasdaq and S&P 500 nearly 10% off their recent lows, there is still a very intense debate over whether this action is just a bear market bounce or a significant low.
At this juncture, the bulls have the advantage. They are doing what they need to so far. There is good support, no expansion of new lows, dip-buying interest, and pockets of momentum. There isn't much in the way of powerful new breakouts, but there is some repair of damaged charts.
Energy stocks continue to be the primary leadership and comprise almost all the names that are hitting new 12-month highs. That needs to start changing if this move is really going to turn into the sort of recovery that the bulls are hoping for.
Many bears are absolutely convinced that the market is ignoring the economic hurricane that JPMorgan Chase J (PM) CEO Jamie Dimon mentioned on Wednesday. There is little doubt that inflation will remain elevated for quite some time. The really big uncertainty is whether a hawkish Fed is going to push the economy into a recession or not. Many strategists believe the odds of a "soft landing" are quite low.
While technical conditions look good right now, the economic situation has never been more uncertain. There is hope that the worst has already been priced in, and that may well be the case with many individual names that have been hammered, but the S&P 500 still hasn't stayed in bear market territory for longer than a few hours, and it is difficult to imagine that it can withstand the biggest economic shift in many years.
My game plan is to focus on managing my individual positions and continue to carry high levels of cash. I want to have maximum flexibility as conditions develop and my trust level in sustained upside is low.
We have the May jobs report coming up at 8:30 a.m. ET, and that is going to cause a market reaction.
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