A pretty rough day in the market, with the S&P 500 dropping just about 4% through the morning and finishing the day higher by 28 bps, a huge reversal.
Days like Monday will not help the case of the markets to see the Fed become less hawkish, had the market stayed down, maybe. But a big rebound like this, coupled with some follow-through today, will not persuade the Fed to lighten up.
There is very little the Fed can do to change paths. It will take a more significant correction to get the Fed to change course. I do think the Fed wants assets prices to come up while they still have QE running to ensure there is enough liquidity and markets don’t start freezing.
S&P 500
The gap down and the significant drop seemed to be way overdone. An inverse head and shoulder pattern formed mid-day and was completed in the late afternoon. After that, the market went for the gap fill.
VIX
The VIX reached 40 yesterday before reversing and finishing the day at 29.9. So that tells you what led to the big market rally, as people closed put positions, which created a short-covering rally.
But I think what is important to remember here is that the market was in the middle of repricing, and repricings can be very violent, and that was what this looked like to me. You can see this clearly with the PE ratio breaking down and falling below 20 over the past few trading sessions.
NVIDIA
Many stocks appeared to put in short-term bottoms, like NVIDIA (NASDAQ:NVDA). It fell to nearly $207, which was a support level. Additionally, the shares reached oversold conditions based on the RSI. I don’t think it meant the declines were over, longer-term for this one.
Intuitive Surgical
Intuitive Surgical (NASDAQ:ISRG) may have also put in a short-term bottom as well.
Netflix
I would hope Netflix (NASDAQ:NFLX) has too. The decline in this stock has been jaw-dropping.
I expect volatility to remain high on Tuesday as people position for the Fed, but it would not surprise me if we finished little changed. It’s Wednesday afternoon that concerns me.