Easy As 1, 2, 3

I’m going to imagine a lot of you are looking at the final results of today’s “market” action and wondering “Just how could it rally as high and fast as it did into a rate hike?”

To say that today’s rally was powerful and swift would be an understatement for it is one for the record books, as it’s the biggest rally into a Fed hike since 1978. Who’da thunk it, right?

Well, in actuality, a lot of people did. Albeit the making it into the record books was a bit startling, however, not surprising, as I’ll explain.

As I’ve alluded to in past notes and on the show: The “market” was in a very oversold construct, remembering it was just the other day we ended the worst April since the financial crisis of 2008. Again, you expect to see days such as these seemingly running in tangent, one following the other, up and down and with velocity, if the ‘market’ was in as bad a shape under the surface as I’ve been chronicling.

This is where the “Everything is OK again!” gets reduced in very quick time to “Oh no, not again! WTF, tell me this ain’t happening, tell me, please!!!” status just as fast, and just as dispiriting, as it was initially euphoric.

To explain my premise further, I would also like to remind you that I’ve been arguing, also in tangent with these moves, that the algos seem to no longer be able to hide their footprints. And what I would like to demonstrate to you, using today’s price moves, precisely why those arguments hold water, as opposed to the dam I feel that is very close to breaking. To wit:

(Chart Source)

The above is the S&P 500™ via one minute increments covering the sell off on the last day of April, concluding with today.

Using my “A bit too technical” thesis, let me pose it this way…

If I asked a roomful of budding technical analysis newbies the following: “Please give me a few text book things you would expect to see if the markets were in a very oversold position of a historic nature, and a Fed policy was rendered that was better than expected.”

Then, as I called on the many raised hands I would most assuredly hear, at a minimum, these three things.

One…

An extreme bounce via a precise catalyst that allowed for clearing out any resting stops or shorts.

Do we have that? Hint: See chart #1

Two…

Typically with any real extreme sell off into oversold territory there is usually a gapping effect (i.e., sell off beginning far below the last closing price) in the beginning stage, where the rally would be trying to back fill and possibly erase most, if not the entirety, of the initial sell off under the criteria set.

Do we have such? Hint: See chart “gap fill” and #2.

Three…

Depending on market exhaustion or frenzy, you would tend to see either sell off or rally near or end on some other catalyst of stop hunting around a large number.

Do we have such? Hint: See #3

As I have stated many times prior in such conditions, I argue: “You need to wait till after the press conference, because the ‘markets’ will give Mr. Powell every moment to either walk back or clarify something it is not happy with. And if he does? The ‘market’ will reward. If not? It will punish.”

Today was that in spades.

Mr Powell did two things that are completely uncharacteristic for both these conferences, as well as the Fed. itself. e.g., He began his presser with a statement directly to the “American people” regarding inflation and more. The ‘market’ took this as a “Uh-Oh” moment (because it would mean he’s far more concerned about Main Street than Wall Street) and immediately began sinking – until the moment – he declared 75 basis point hikes in the near future are off the table – and – the balance sheet run off is much lower than presumed (i.e., around $50Billion to start where the ‘market presumed $75-$90Billion)

Oh, and one more for the kicker…

He declared it starts June 1st, not immediately or near immediately, signaling “You got the full month, don’t say we didn’t warn you. Merry Christmas!”

You can see this in detail via the above chart, precisely when that happened. It was such an easy read by myself and others that many of those “others” that are true Fed watchers (e.g., Danielle DiMartino-Booth, former Fed adviser to Dallas president Richard Fisher et al.) nearly jumped out of their seats on camera, pointing to the screens saying “And there it is!” Because, there it was indeed.

“So what’s to be made out of all this?” I can hear through my screens. Great question. And it is this…

I fully expect this entire rally to be reversed and the lows taken out possibly with great velocity in short order, aka soon. I do not believe this rally “sticks” as the saying goes, and will be shown to be a total and utter head fake, catching many that I watched, read and heard proclaim “This is it! BTFD (buy the f’n dip) is back, baby!!” completely by surprise and worse for those that still believe in them.

Again, from my perspective…

You could not lay out a more perfect text book example for such if you designed it yourself.

As always, we shall see. But that’s how I’m seeing it, for those that want to know.

© 2022 Mark St.Cyr

Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.