Market Win Streak on the Line as the Fed Takes Center Stage

Fed Chair Powell Delivers Semiannual Monetary Policy Report To Congress

The S&P 500 is pushing for its first three-day winning streak since mid-February. Whether it gets there depends on how investors react to the Fed interest-rate decision at 2 p.m. ET and the Jerome Powell press conference that follows.

The past couple of days of mild strength reflect some calming of fears about oil and Iran rather than any real resolution. President Trump's vague comments about improvements in the next couple of weeks are attracting investors who want to be positioned ahead of good news. That is hope-driven buying, rather than conviction-driven buying, and is much harder to trust.

Oil and Rates

Oil remains above $100 a barrel, but interest rates have drifted slightly lower, which has taken some pressure off. The Fed will keep rates between 3.5% and 3.75% and no one expects anything different.

What everyone will be watching closely is how Powell characterizes the inflation outlook given what is happening with energy. Powell will certain make it clear again that the Fed is "data dependent" but investors will be listening closely for any nuance or hints.

The market was already dealing with mild upward price pressure before the Middle East situation developed. The big unknown now is how much the energy disruption adds to that and for how long.

The Technical Picture

The good news is that stocks are consolidating and holding key support levels. That is encouraging, but it is dangerous to assume a major market low is in.

Headline risk remains substantial, and there is also the threat of selling pressure picking up as investors who are stuck in losing positions use any continued strength to reduce exposure. "Stuckholders" selling into rallies is one of the major issues that can kill bounces before they develop strong, sustained momentum.

Game Plan

I am slowly increasing some long exposure as I mentioned on Tuesday. The key is to stay very patient and incremental as conditions evolve. I want to establish footholds in a few new names and be ready to add as I see some improvement. I'm not thinking at all about trying to precisely time a market turn.

The mood feels a little too complacent and comfortable given the news flow that is still on deck. Investors are scared of missing a sharp move higher when good news hits and that fear is what is keeping more aggressive selling at bay. It is a reasonable concern but keep in mind that hope is not an effective strategy.

At the time of publication, Rev Shark had no positions in any securities mentioned.