Yesterday’s session was hopeful. A few times, it looked like gains would be erased, triggering a cascade of selling. Although slim gains held, even as crude oil rebounded. It’s still in the “Extreme Fear” zone, however.

Message of the Market

Energy (XLE) rebounded, which is self-explanatory, given crude oil was up more than 3%. Growth sectors (Consumer Discretionary (XLY) and Communication Services (XLC)) followed. Bringing up the rear was Health Care (XLV), which is starting to signal a yellow flag.

Health Care (XLV) closed at the same support point that held back in December. I think it has to make a stand here.

Broader Market Message

The ultimate safe haven these days is “Low Volatility,” which eased a little yesterday, as investors peeked around. There is no shortage of enticing names, but the bigger moves came in more as conservative niches, such as midcap revenue and midcap quality.

This is the playbook. Come out of the foxhole, keep your head on a swivel, and then take greater risks, as it feels like the coast is clear.

Better Breadth

There was success across most breadth metrics, with new lows over new highs on the NASDAQ, the only blemish. When that changes, it will be among the first signs that the market's overall tenure is shifting (becoming more bullish).

It’s Fed Day

Recession chatter is gaining ground, and now there is a greater probability of a rate hike than a rate cut.  There’s no way this should happen, but it makes for great cover for the otherwise confused ‘hawks.’

The economy had shifted into a higher gear right before Israel and the United States hit Iran. It is the perfect time for the Fed to cut rates so that small businesses can get in the game, and middle-class households can catch a break. Cutting into an expansion is magic for the stock market, too.

Today’s Session

This morning’s PPI report will arm Fed hawks with extra ammo.  All the key components came in hotter than consensus, with the only silver lining being the pace of month-to-month core at +0.5 versus the prior month at +0.8%.

The market remains sensitive to Iranian/oil headlines as well. Earlier this morning, however, several stocks were making monster moves, including Applied Optoelectronics (AAOI), which is extremely oversold. This is a moment in time when emotions are superseding fundamentals.  We love it when that happens on upswings and cringe during downswings.

But this is investing, and we ultimately want to capitalize on these periods.

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