The market action fizzled out on Monday and closed at the day's lows, following some very frothy action last week. The Nasdaq 100 (QQQ) lead to the downside with a loss of around 2% on breadth of around three-to-one negative.
Most notable about the action was that there was no significant news flow on Monday, but investors grew nervous. Major earnings reports arrive on Wednesday and so does the Fed interest rate decision. Mike Wilson of Morgan Stanley, who has been a vocal bear, recently said that the Federal Open Market Committee decision and the press conference with Fed Chair Jerome Powell may remind investors of the cardinal rule of investing "don't fight the Fed."
Last week market players looking for an adverse reaction to earnings reports were trapped when Microsoft and Tesla performed well and attracted buyers who started to anticipate a Goldilocks economic situation with failing inflation, a soft economic landing, and a friendly Fed. There is little evidence to suggest that will happen, and market players seem to recognize that today.
Technically, the market has had a great start to the year. The giveback on Monday is a reasonable reaction to overbought technical conditions. Still, the issue that will quickly develop is whether this is just another failed bounce in a bear market. The reaction to the news on Wednesday will go a long way in answering that question.
Sentiment tends to shift very fast in bear markets, and we tasted that today. We will likely see more choppy action on Tuesday before the news flow hits the fan.
Have a good evening. I'll see you tomorrow.