The question of the day on Tuesday was if the Fed will go to a half percentage point or three-quarters. As someone who is not a Fed watcher, I wouldn't even speculate. But here is my question: If you knew the Fed would go 50-basis points, what do you think the market would do?
Or, if you knew it would go to 75-basis points, what do you think the market would do? Isn't that what we really care about?
We have had three Fed meetings this year. In January, the S&P closed flat on the day after being both up and down quite a bit -- we had a 100-point range on the S&P that day. In March, the market lifted and rallied for nearly three weeks.
In May, the market had started rallying two days prior and rallied quite strongly as the S&P was up 125 points that day. And then we slid for the next two weeks.
With exactly three tiny little data points, I would say that at least the market hasn't tanked on Fed day this year, but each one has been volatile in its own way.
We come into the meeting with the market a little oversold. We come into the meeting with the number of stocks making new lows still not expanding after Tuesday's up and down day. We come into the meeting with the lower channel line I drew in yesterday still intact.
We come into the meeting with the sentiment more bearish than it was a week ago. For example the put/call ratio for exchange-traded funds on Monday was 1.97, which was the highest it has been since it was 2.13 on March 1, 2021. Prior to that it was 2.0 on Nov. 11, 2020. Prior to that we have to go back to the March 2020 collapse for readings that high -- and there was a truckload of readings that high or higher then.
But my point is that in this entire decline in 2022, the put buyers for ETFs have not been this aggressive until this week, so that's a change in sentiment. The Daily Sentiment Index (DSI) did not budge for the S&P after Tuesday, so it remains at 7. For Nasdaq it pushed up to 9, so it remains single digits.
And bonds? They seem to have no bid, and are now with a DSI at 5. That is highly unusual. Betting bonds will continue downward with a DSI at 5 is not what I would do. They are due for a bounce.
Is the market in good shape? No. But you don't need me to tell you that. Are we due for a bounce? Yes.
But let's talk about gasoline. Every news show you see on television is doing a segment on 5-dollar gas at the pump, so naturally I keep checking the chart of gasoline futures. It peaked in the first few days of June (thus far). It tried to make a higher high last week and failed. It closed on Tuesday at $3.99, which is the first close under $4 in June and is now flat on the month.
The chart hasn't done anything wrong and this looks like a correction for now (that uptrend line is good support), but when everyone is talking higher gas prices and all I see is that they are flat on the month, it makes me wonder, have folks gotten ahead of themselves when it comes to gas prices? Imagine if they ticked down some.
