Brewing evidence of a relief rally - was evidenced during preceding days of persistent nearly-90% net down volume in S&P trading; while Thursday was very choppy, but reflected a clear exhaustion into the S&P 3800's, without the classic washout; but 'good enough' to get us anticipating a coming 'relief rally', which blossomed quite nicely Friday. Sustainability sure remains a toss-up.

The idea of a classic capitulation wasn't insisted upon because so many small and later big stocks 'already did that' in preceding price action. Hence, hard to get the market to go lower; plus the volume and breadth criteria concurred to a degree with my desired ~3800's. So far it is however within bearish context; so of course that's what won't be clarified without more supporting evidence.

Even the Fed Chairman is 'unsure if they can engineer a soft landing'; which I didn't like hearing, because he assumes they are the arbiter in this situation. It would be the case, but the inflationary pressures (he originally wished for) are way beyond those normally influenced by adjustments to monetary policy.

That doesn't mean we can't see more later in terms of bearish action; but for sure nobody knows how that will pan-out as highly correlated to Oil prices (up on Friday as OPEC is under-producing their own target levels; purposely I'm suspecting); and to commodities. Both of those relate not only to domestic or politically-induced upward price pressures; but primarily to the 'war's' impact.

Basically our view was that a 'relief rally' was due; and that history shows how it can fail in time, or conversely how (miraculously) fundamentals might shift in the midst of the relief move (in a favorable way) so as to ramp stocks higher. I also pointed-out repeatedly that this has been -not just 'is'- a bear market; and it is also the case this isn't new; with air coming-out of small stocks for a year.

None of this means 'rates have peaked'; especially if the market or backdrops don't improve. However 'if' the war ends, Oil breaks somewhat; and also we'll see supply-chain issues improve (especially as China gradually unlocks in the process we believe is already initiated in Shanghai and next other cities so as to expedite return to work and production; even if health considerations take a second place to Chinese authorities, which might not be terribly surprising). I am nevertheless looking askance at dramatic North Korean outbreaks, with NK bordering China and isn't too far from major population centers in China. I noticed Beijing's order today prohibiting international flight departures too..

If you get that combination while a relief rally is underway; it gets prolonged or better. Yes lots of our domestic inflation is analogous to historical wage / price increases and the Covid-stimulus; but the Fed (tardy to emerge from easing) is obsessing with making up for lost time by being heavy-handed in comments if not actions; 'as if' almost myopic about how they view the inflation triggers.

I was pleased that Chairman Powell finally acknowledged their were late to a rate 'hike'; but he's still superficially too stubborn about believing they can stop the inflation; with only slight lip-service to the external influences (like the war or even the manipulation by OPEC taking advantage of the pricing situation).

I thus suspect that 'if' a ceasefire develops (or improvements in supply and / or Covid in China occur), and in-response to US 'trucking costs' dropping this week suggested, you do get a fade in inflation; it should temper the Fed's zeal about sequential hikes. This is all speculative and pending; but that's one way the 'relief' rally could evolve into something more. Fail to get any of that, 'and' see the CPI continue to soar; and of course a return to S&P pressure ensues.

Essentially: momentum shifting signals, from down to exhaustion, prevailed in the past few days activity; with mega-cap stocks hammered about as much as feasible, at least in the short-run; with the longer-run prospects variable.

As we spotted the shift in negative sentiment (including a VIX refusing to pop to higher levels around 40, even as S&P was down at times) we increasingly prepared for a 'relief rally', and even thought Friday the 13th would be 'up'; so a lucky day for the bulls, and not for the bears who overstayed downside.

The remaining dilemma is not just the Fed's approach but still expensive level of pricing for many mega-caps; even after the exhaustive decline. That's really a conundrum that not rediably answered absent knowing how certain huge as well as geopolitical fundamentals will shake-out .. or shape-up .. in the near future; but hopefully some will. Most visibly would be Oil price moves; aside a disconnected subtle approach by greedy OPEC countries slicing production.

The new week will have a few more earnings reports, like Home Depot and Lowe's and Walmart (might break its trend; too many optimists); while Target might do better. Also got beaten-up Warby-Parker and Cisco (the latter may do fairly well). Likewise Applied Materials and Deere (hiding place for some) follow might absorb any selling decently. AMAT might trim estimates; but for all practical purposes the business of 'building fabs' should continue to grow a good bit above trend; so either way helps our SiC play; AEHR Test Systems.

Perhaps the most reticence will be in St Louis Fed President Jim Bullard's talk on Tuesday, since he's beating the drums for more aggressive Fed action and is one of the Fed-heads that doesn't attribute much of the cause to lots of existential influences, like Oil prices, food shortages, and the 'war's' impact.

Bottom line: Hazards persist with the Fed tightening 'into' a downturn. But we got our 'relief rally'; and there are many variables that could reinforce the Fed perspective of 'doing more harm', or could avert there (say a ceasefire and a break in Oil prices). All I know was it made sense to resist universal negativity this past week; and even play 'for' a rebound regardless of sustainability odds.