[Chart courtesy of MarketWatch.com]

1. Moving the markets

Traders and algos alike continued with their relentless efforts to challenge the Fed’s resolve of hiking rates for “higher and longer” by propelling the major indexes higher on the last day of the month and the day prior to the Fed’s much-awaited policy announcement.

Again, much of this January move was based on the Fed at least shifting into “pause” mode, which they eventually will, but likely because of the economy is turning over, which will then mean the rally could be short-lived due to earnings taking a hit.

For right now, the overriding theme is a bullish one with S&P 500 having scored its best January since 2019. The anticipation is for the Fed to hike only a meager 0.25% tomorrow, with an 83% chance of another 0.25% in March being baked in the cake.

A massive MOC (Market on Close) order erased all of yesterday’s losses, while the seemingly ever-present short squeeze contributed to January’s comeback. All this exuberance has now reduced the financial conditions to their loosest since June, as ZeroHedge pointed out. This is just the opposite of what the Fed wanted to see, when they called “unwarranted easing” in the last release of their Minutes.

Bond yields slipped during January, the US Dollar fell for the 4^th straight month, all of which benefited Gold, as the precious metal not only surged for the 3^rd straight month in a row but also gained a solid +5.74% just for January—only a hair below the S&P’s +6.29%.   

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Anxiety reigned supreme ahead of the Fed’s decision on interest rates, with the markets having priced in a meager 0.25% hike. That is despite the countless announcements by a host of speakers that “higher rates for longer” are the current policy theme, yet traders have battled the Fed every step of the way.

It’s likely that the Fed eventually will reverse its tightening schedule, but it’s questionable whether that point in time has been reached already. Wednesday’s release of their decision will shed some light on where they are at with their policies. Will the hawkishness continue? The H2 2023 Rate Cut Expectations seem to indicate so.

Adding to the nervousness in the markets will be the continued earnings barrage with some 20% of the S&P members releasing their report cards this week, including some of the tech giants like Apple, Amazon, Meta, and Alphabet.

At session’s end, today’s reality check erased all of Friday’s gains and then some, as the short squeeze ran out of ammo again.

Bond yields rose due to uncertainty about the Fed’s policy decision, the US Dollar dipped and ripped, which caused Gold to drift modestly lower yet remain firmly anchored above its $1,900 level.

We might see more of the same tomorrow.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Yesterday’s non-event session heated up in overnight trading, after Microsoft’s earnings at first spiked their stock price due to better-than-expected cloud service results. This moment of euphoria was short-lived, however, after the CEO presented lackluster guidance that would result in reduced earnings. That was end of the rally, and Microsoft tanked, making this morning’s opening very likely a weak on.

That’s how it turned out, with the Dow sinking some 400 points and the Nasdaq getting clobbered. Optimism suddenly resumed, as dip buyers stepped up to the plate, and a steady climb out of that early hole erased all losses, and we closed just about unchanged.

The S&P 500 lost its grip on the much-fought over 200-day M/A intra-day but, thanks to the dip buyers, it reclaimed that crucial level, as the rebound accelerated. And, as I have commented numerous times, such a rebound is simply not possible without a short-squeeze, which is exactly what transpired today.

Bond yields slipped a tad, the US Dollar retreated, while Gold surged after being down early in the session with the precious metal now homing in on crucial overhead resistance levels. If they get broken, the $2k price point will come into play again—hopefully with longer duration than the last two attempts.