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.  

1. Moving the markets

An early Ramp-A-Thon lost some momentum during mid-session, but the pullback was contained and still enabled the major indexes to close solidly in the green.

While the S&P 500 managed to finally break above its 200-day M/A, it was not yet able to hold the move above its longer-term downtrend line, which had been a insurmountable resistance point throughout 2022.

Supporting today’s follow through from Friday was the continuation of the short squeeze, without which there would have not been enough upward momentum. That brings up the question whether this session simply represented the reloading of the shorts, as ZeroHedge described it.

Traders still contemplated a potential slowdown in rate hikes, thereby stubbornly taking the opposite view of what the Fed and its mouthpieces have been jawboning about for months now, namely “higher rates for a longer duration.” Of course, there is always a possibility of only a +0.25% hike when the Fed meets early February.

Earnings will be closely watched this week, as some big names like Microsoft, IBM, Tesla, Visa and Mastercard will be presenting their report cards. As always, future guidance will be at the center of attention for most analysts.

Much overlooked are figures like the Leading Indicator (LEI), which clearly shows that the “soft landing” theme may not work out as had been anticipated. Stocks ramped anyway and even rate-trajectory expectations drifted higher (more hawkish), which makes me wonder how much more firepower is left in the bullish scenario.

The US Dollar dropped and popped, went sideways, and closed just about unchanged. Gold pumped and dumped and managed to eke out a small gain.

1. Moving the markets

The markets took a hit today, as January’s bullish momentum ran into a glass ceiling, namely the S&P’s 200-day M/A, which had derailed every rally in 2022, as this chart shows:

Only time will tell, if this is the beginning of another leg down, after the S&P has now “lost” its 200-day M/A again.  

Contributing to today’s Dump-A-Thon were weak economic data points, including huge misses in Producer Price Index (PPI), retail sales and industrial production confirming once again that the economy continues to slide into recession territory. With Microsoft planning on laying off some 10k employees, the Dow suffered the most from today’s sell off.

Sure, after 2 weeks of bullishness, some profit taking has set in, but more so the realization that a recessionary environment is not conducive to higher earnings, because it ultimately decides the value of stock prices.

The theme of a soft landing was put on the back burner, as odds of an eventual hard landing have increased due to the above-mentioned weak data points. Even the Fed’s terminal rate expectation took a hit, as traders are convinced that the Fed will pause in May and then begin a massive rate-cutting pivot, as ZeroHedge described it.   

That wishful thinking is totally engrained in the Wall Street community, so much so that despite multiple Fed mouthpieces today agreeing that “inflation is down but not enough to stop yet and rates will go higher and stay higher for longer,” market participants are stubbornly sticking to their opposite view.

And, as you might have expected on a sell off like today, the short squeezers had no ammo left for another bullish assist.

Bond yields plummeted with the 10-year dropping to a level last seen in September. After riding the intra-day roller coaster, the US Dollar ended just about unchanged. Gold followed a similar pattern and closed a tad lower but remained above its $1,900 level.

Another battle will be starting tomorrow, as the debt ceiling limit makes its presence known. This may turn into an endless and possibly market moving tug-of-war, until final decisions will have to be made by around June 2023, before the national credit card expires.