The market enjoyed some lively follow-through action to start the day, but it turned into a very ugly intraday reversal. The main driver for the early buying was poor economic news that creates hope of a slightly less hawkish Fed combined with poor positions and some short squeeze.
The market turned down after several Fed members made comments again about how it is far too early for the Fed to proclaim victory over inflation, and there is likely to be several more hikes before sufficient progress is made.
The Fed has made it quite clear that it doesn't want a market rally, and some members have expressed puzzlement at how the market doesn't seem to be taking the Fed seriously. Everyone is aware of the old saying, "don't fight the Fed" and they embrace it well in bull markets when the Fed is dovish, but in bear markets, with a hawkish Fed, they seem to ignore the advice.
The intraday reversal on Monday illustrates how the market is still struggling to discount a host of economic issues. Some bulls are hoping that a recession can be avoided or that one is fully discounted already.
Technically the key now is that the indexes hold about the lows hit in December. For the S&P 500, that is around 3765. If that level is breached, then it will likely be a quick trip to a retest of the lows.
The bulls have their work cut out for them if they are going to create any sort of sustained uptrend. Earnings season is going to be a challenge, and the Fed is not going to make a dovish pivot until there is a very clear economic slowdown.
We had a good bear market bounce that lasted a day and a half. Given current market conditions, it is going to be difficult to do much more than that at his time.
Have a good evening. I'll see you tomorrow.