January 26, 2022
Good morning,
Happy Fed Day and thank goodness it’s here, at least from the view of overnight sentiment. Futures are up for a change this morning, +1.75% with Nasdaq futures up +2.5%. I think we know only too well that where markets are early in the morning ET, has little bearing on where they’ll be at 4pm to close. Nevertheless, plus feels just better than minus over morning coffee.
I suspect this morning’s strength is tactical (traders) vs strategic (investors), ahead of the Fed announcement a little after 2pm ET. However, we did mention the probability that Monday’s unusual reversal would likely be part of a bottoming process. So far, we have not seen anything to contradict that. Who knows, maybe investors will follow traders later today and put this correction in the rear view mirror.
The VIX is down almost 10% this morning and under 30. The direction is good for end-of-correction hopes but at 28 it is still elevated and too early to make the all-clear call. On the plus side, short-term sentiment has gotten down to a level of bearishness reached only once every other year on average over the past 15yrs. The “buy” signal on this indicator, as it is with all sentiment indicators, comes not when an extreme is reached as it is now but when it reverses from the extreme. Perhaps we’ll get that reversal reading today.
All this is very short term oriented because spikes in volatility and downdrafts in markets cause emotional spikes in all of us and turns our focus to hour-by-hour instead of quarter-by-quarter as it should be for investors.
I have a longer term, monthly note already written mentally. I’ll try to put it together and get it out a few days early in tomorrow’s Morning Note. Have a good day.
Be well,
Mike