The CPI report was roughly in line with expectations, and despite screaming headlines about the highest inflation in over 40 years, the market saw it coming and had a favorable reaction to start the day.
Many market players are poorly positioned after the recent volatility, which is helping to create some positive price action, but there are some signs that a reversal may be brewing. Many small-caps and biotechnology names are weak again, and the number of stocks trading at intraday highs is fading.
I suspect there is a risk of an intraday reversal in the indexes, but that will be dictated by the algorithms. The biggest danger in this market continues to be aggressive rotation between value and growth names. The main focus in the market is sectors that benefit or are hurt by higher rates. Individual stocks are secondary.
I’m managing positions tightly and have a sizable cash position to work with. I am waiting on pullbacks at this point.
It is disappointing that many smaller stocks that have great fundamentals are being pushed around by algorithms, but at some point, stock-picking will payoff again. We just have to wait for the shift in conditions.