Negative divergences increasingly creeping into the NY market are reflected a good bit by the S&P shuffles, and overall big-board technicals. Yields were up with a mediocre Treasury Auction, but nobody really puts much faith in that as a result of the CPI rise, nor expectations of a roaring inflationary backdrop.

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Rather Tuesday might have been a mixture of yield worries, of value lagging the growth stocks (other than some tech mega-caps), small-caps down perhaps a response to the hotter inflation number, and we disagree with those upgrading Boeing (BA), and not just because they did so on a day of 787 production slowing.

The Bond market will listen to Fed Chairman Powell in a couple days, likely in a mode to diffuse too much concern about inflation. Christine Legarde already telegraphed that with her remark that in about a week she'll have a statement to make about how they might continue to help business recover (Europe has greater need than we do, but ECB is usually in-sync with the US Fed).

The Dollar remains strong, as we'd contended it would from the 90+/- level. It may consolidate a bit, but overall should remain firm. Concurrently Oil prices are reflecting expectations of continued production 'discipline' in the US, while contracting demand from Asia (not yet, but if it happens) impacts Brent more (UUP, OIL, BNO).

This Quarter won't see dramatic activity, but is vulnerable both seasonally (as a time of limited liquidity inflows), and as I think there's been more selling of a slew of stocks by some big firms and funds than is being disclosed. Yes in an intraday video I referenced the conflicting analysis from Goldman Sachs (GS), but I know how they do that, by trying to separate analysts from strategists views.

I smile at that, but not surprised to hear rumors of their heavy selling just after issue a very optimistic forecast for the year's 2nd half (I mentioned at the time that it was perplexing given what they obviously know already happened with upside action, and ongoing internal corrections) (SRNE).

In-sum:

Market indigestion is about six month ongoing now, glad to hear one or two analysts acknowledge this. So yes, it took the wind out of the sails for a broad-based market surge, even as the S&P 'pretends' it's all smoking hot (SPY).

It's tough to define, but this internal correction is sufficiently wide with certain stocks emerging and many (including small caps) still immersed in mediocrity, that it's sort of a 'rolling bear market', but it isn't fully matured. Ironically as for maturity, that was literally half a year ago or even back in January, varying of course with the stocks and sectors. As suggested then, Oils & Banks held it together, and 'when needed' the mega-tech stocks did some heavy lifting. It's still a continuation of that behavior, albeit at a very extended Index level.

For months I've noted how the narrowly-led super-cap domination has been a boon to allowing money managers to 'hide' (they assume) in such stocks. It's also a neutral stance (I've noted that in indicator interpretations) that sorts-out matters before the next cycle.

This is all part of why I've been concerned, wary of periodic shakeouts, but no real new surge in economic activity, because we had that 'last year' not now. I think the achievement of peak earnings growth or peak S&P don't in-essence have to collide. However we have had the internal deterioration for months, so it doesn't mean we can't get a 'flash crash' as some have called for all along (and entirely prematurely), but it would be a 'catch-down' with the 'real' market that is already defensive. It also makes it harder to get an 'orderly' decline.

So I've been wary about corrections but not catastrophes, and that's not at all changing for now. And the internal backing-and-filling actually mediates broad declines, however it doesn't mean you won't get a 'catch-down' whoosh drop by a handful of very overpriced mega-caps.

By the way I do believe 'The Roaring 20's' case I've argued for over a year off the March 2020 lows. And I do believe bank loan demand will increase. But even a lion needs to rest and hydrate, so it can road again in the future.