1/31 Daily Market Note: FOMC Day Cancels Near-Term Rate Cut Hopes
Can the rest of Big Tech earnings restore market optimism?
Hey Folks,
Short note today as I spend time in the background digesting whether Fed Powell’s FOMC conference today marks the swing highs that markets have enjoyed recently. My conclusion on his remarks is that he didn’t say anything that is surprising, but the market’s elevated juncture left room for disappointment. And that’s what happened today.
As we talked about in our pre-market on WhatsApp, I saw today as a 2-Part session where the Part 1 may be range-bound and Part 2 will see range expansion as the Fed shares their thinking on the future of rates.
Today’s profile did not deviate too far from my thinking, but the downside extension was larger than I would have liked to see.
The last time I saw the market close at the lows with such strong Seller’s Auction was back in the first week of January when market sentiment had departed from 2023’s optimism.
As markets get more difficult, I want to share some personal observations for folks inside our Community who transact on Intraday timeframes, which is a timeframe I sometimes participate in when/if appropriate. This is why I’ve been sharing ranges and thoughts on market activity in my pre-market notes as those convey my initial frame of mind for the day.
When higher timeframes are bullish, I’ve often seen that dips during the day are flattened out/bought up and that we rarely close at the Low of Day (LOD). Additionally, selloffs that happen throughout the day are not sticky and eventually recover - which is another way of saying that Buying the Dip works frequently.
Today’s session may be the beginning of a change of character, and while higher timeframes are still bullish, I’m no longer assuming that intraday rallies will have the same staying power as in the past. In other words, rallies intraday could be shortened and selloffs intraday will not have as many bounce entries (if at all). This means long intraday scalpers probably will need to reduce the profit taking range from entries and be on the lookout for bearish reversals.
I believe the initial spike that we saw post FOMC for /ES (S&P 500 proxy) and /NQ (Nasdaq-100 proxy) resulted in a trap where there are now a lot of stuck Long positions north of 4912-4915 on ES and 17400 on NQ. This of course won’t be a problem if the remainder of Big Tech earnings swiftly reclaim that territory but absent a major positive catalyst, the other side of the market who Sold-Short those levels now are not yet threatened to cover as we are meaningfully below those levels now. This means until proven otherwise, short-sellers have unrealized profits on their side to wager on holding rallies down. Clear that level though where longs got trapped, and I believe they will have to cover.
One positive read through that I heard from the FOMC conference was that there is a possibility that Quantitative Tightening is being discussed for a possible wind-down later this year. The end of QT is essentially a quasi-form of beginning of QE.
However, the market does not appear to want to price in that silver lining in a positive manner just yet.
The environment becomes more tricky after today’s FOMC conference and the latest round of Big Tech earnings where the bar has been set too high. Will continue to research in the background and share my Daily plans in the Pre-Market notes.
Be on the lookout for any significant unwind of Magnificent 7 positioning from the Buy Side. U.S. tech is currently the most crowded trade among institutional investors.
Quick note on China: it appears Hang Seng wants to put in a Higher-Low. If it does so, the recent weakness plays out to the roadmap that I discussed here. Next catalyst based on my observation is China’s Two Sessions meeting in March. Will discuss more when we approach that timeline.
Share and subscribe for more. Have a great evening.
-Larry