Market Briefing For Monday, March 21

Confounded pundits prevail, as many strategists or observers are at a loss to explain how the market rallies in the face of war, higher rates and what for some was an important stubbornly high VIX for awhile. That last point was a factor related to Chinese holdings that had collapsed and pressured funds in such vehicles; and then as Beijing switched policies, that evaporated. Most of the pundits missed that backdrop; and thought it was conventionally bearish.

Nevertheless there are still aspects of this market that don't pass a smell test. That's particularly with respect to the still-pricey mega-caps, which at this point have not allowed for true disappointing growth, if in fact that occurs. It's too soon to tell; and yes we hear Chairman Powell suggest the Fed might be able to navigate this 'snugging-up' of monetary policy without contributing to 'recession' coming; but 'might' is the operative word; history disputes being able to do that. However history also has prosperity following pandemics, so of course there's that. And disruptive new-tech stocks got so suppressed that they became bargains; so that's one of the highlights of this advance.

Inflation 'should' be discouraging; as supply-lines are still hobbled (Covid etc. but slightly less dependency on goods from China); while Oil may stabilize at or near the 100/bbl level. It will be important that it not surmount recent spike highs that we warned were 'not' at all time to get bullish (we've been Oil bulls for more than a year); as the run was the reward for last year's enthusiasm.

If one wants to see what could derail this slightly better environment triggered by S&P holding the lower limits of the technical washout and secondary tests noted, and then the slight upward penetration of the expected resistance right at the intermediate declining-tops trend pattern (discussed in a prior Briefing), it would be a complete 'freaking-out' over the war situation. We'd prefer that a new outpouring of 'freaking Russians' would reverse Putin's belligerence; but of course that's a long-shot, even after 'state-run' TV cut his stadium speech (supposedly by technical accident) at the huge Moscow stadium last night.

In-sum: we hope the ideas of a bottom being behind are valid; though doubt it has the ability to move up persistently once short-covering or resulting funds flowing in will be sufficient to negate all the concerns. This market know what faces the market; and also some of the ancillary concerns. That also meant a very oversold condition was set-up (as we assessed a week ago); setting-up a snapback at minimum; and perhaps something more. That part is pending.

It's not just margins and earnings; though that's the crux of how this goes over the longer-run. Money flows matter. The Covid-driven supply-chain matters. A tighter Fed matters. But everyone knows this. This market is not merely driven by the consumer-based economy, which to an extent almost always still lives paycheck-to-paycheck; hence it's not a 'black swan' for the market just now.

One factor that 'is' problematic is the seizing-up of commodity supplies really in many areas; not just agriculture. And Oil can firm based on demand (versus just on geopolitical risk) if China emerges (and they are trying to); but that will alleviate some of the supply-chain issues, and perhaps calm the world a bit. It would help if there was accommodation between Xi and Biden; but that is fairly unclear based on conflicting and somewhat contradictory releases.

Bear Market rallies are alluring, as some say; and often temporary. Sure, that could be the case here; but with so many naysayers around, the surprise may be not so much a 'soft-landing' in the economy; but actually a settlement that's surprisingly favorable for the market; detached from the inflation/Fed worries.

Of course there's scant evidence that Putin is ready to move that direction; as he tries to 'rally the troops' (his fans) in the Moscow statement. Yet, behind all those scenes, there are reports of 'specifically-outlined' draft agreements. Just as few believe the market can move higher; even fewer envision Russia going for a 'deal'; although the set-up for the S&P was favorable to advance coming off the washout low not so many days ago.

As we pass Expiration and move into a new trading week; it coincides with a key trend resistance we've described; and there ought to be some backing-off that is pretty obvious to traders. It should also be obvious if it gets overcome.

That makes the new week interesting; and there's not much more needing to be said on that score; as the variable are essentially what we all know already subject to over-the-weekend surprises or just continuing harsh developments.

Bottom-line: we don't take anything for granted here; we do not presume any significant rallying action beyond an extension effort into the next midweek as noted; however we are open to the idea of things improving under a few (but at the same time minimally likely) conditions.

It's because so many call the forecast relief rally 'nothing more' that they are fighting it. That's logical and even fits my 'don't fight the Fed' mantra. It's just a realization so many remain skeptical; it's almost as if they expect nuclear war to have greater odds than a Spring rally in the market. (Perhaps neither will of course occur; but we'd opt for the latter more than the former.)

Friday was continuation of 'relief', as the stressed VIX eased further; and we'll look for another upside shot of the market, with less drama, depending on the extent of post-Expiration consolidation that the market experiences next.