Expiration underscored my view of large open-interest needing unwinding; a crowded short-side which could be driven mad; and overwhelming negative sentiment, which portends higher not lower prices, even if Bears have a point.

We can't extrapolate too much from this action; but it's in-line with suspicions as to how it would go; and now we'll likely see S&P 4000+ for more than just a moment or so. This is also intertwined with Fed desiring 'rate normalization', but not destruction of the American economy; and it actually looks reasonable as far as the Fed achieving that. I've referred to it for a long time as 'softish'.

While the Fed put the Country through 'trials by fire' by keeping rates too low for too long as contended a couple years ago; that doesn't make bearishness nearly two years 'after' the market's internal broad peak, appropriate.

My view was that late 2022 and early 2023 pockets of extended weakness were residual continuations or extensions from the prior year's drop, and not the beginnings of new declines as a majority of technicians proclaim now; although sometimes with less gusto, because stocks went up, not down.

I have repeatedly pointed to 'reversal patterns'; soupbowl-like bottoming and 'inverse head & shoulders' patterns even on an intermediate basis. Now that a lot of prices are higher, albeit mostly in minor fashion, some technicians start to recognize this characteristic, while others still project cataclysms.

I do see what they're thinking; but that's where we were a year or two ago; closer to a movement up not down, with many analyst figuring out what has happened; as opposed to what is likely to happen. Some of that depends on the Fed not 'lowering the boom' (they actually haven't pummeled that hard but getting there with M2 moves) and of course money managers that persist in a need to perform (which is why many traders didn't get 'year-end bonuses' on Wall Street).

I think it's selective; a process; not out of the woods; working on it. It's tricky; and lots of technicians look at stocks that rebounded this month and suggest 'fading them'.. again they didn't favor the rebound; they still want to be bears, and of course if the Country adjusts to the new economy; guess what? More upside, not catastrophe; of course with periodic shakeouts to scare optimism.

Conventional outlook wisdom remains defensive-to-negative-to-horrible, while 'they' say that everyone is optimistic, which isn't the case. Ah ha... so who are the buyers? Mostly short-covering and hedgers; plus special situations acting like it's early 2021, taking selected tech stocks and most semiconductors, up.

Meanwhile, for S&P (which is weaker than some techs) you have Oil support with Banks fair (some worry about rising delinquencies or late payments; but it's not up to the levels of previous financial crisis in this Country; but could get there if the Fed continues their offloading; but again we play this as it goes.

So sure; there is the 'equilibrium' we've talked about without excessive focus on the Fed, that so far is trapping managers somewhat like early 2021 as they fought the growing upside. I don't expect that outside of selected stocks; but I do believe a bifurcated 'active not passive' investment backdrop can allow the upward movement, guardedly in many stocks, distinct from those that really respond to Fed moves. Obviously, Autos, Housing and/or Retail are impacted.

On 'Autos', while I'm optimistic for a couple disruptive players and EV sector in the fullness of time, I've discovered a problem that everyone sort of knew; but probably ignored. This occurred when I happened to ask why there were a couple used (very low mileage) Tesla's at my Mercedes dealer. Then I saw a couple more at a Porsche dealership (they weren't buying EQ's or Taycans).

Ah ha ... all of them were cars that missed being damaged (so they say) by a recent hurricane that smashed Florida's West Coast ... but they learned that their 'insurance carriers' will not provide flood damage coverage to a Tesla. I did not know that; but now I do. If that's common (haven't checked) we should all be aware of it; especially anyone living in a coastal/river flood-plain zone. I asked and was told every one of them was traded on an SUV with normal or high ground clearance (a friend has a Range Rover Velar with adjustable ride height, and variable ground clearance is likely a plus; but reliability doubtful).

I just thought I'd mention this because I was told that batteries are destroyed by flooding; they are on the bottom of a vehicle; and at $20,000 replacement cost, insurance won't pay for it, nor car's warranty (this may vary elsewhere). I think there needs to be solutions; because millions of cheaper EV's will come.

Bottom line: yes, there is a collision point for big-cap markets; primarily not a conflict with the Fed as many proclaim; but an adjustment to 'normalization' as we have described the 5-6% interest level for well over a year. So far the U.S. economy is doing a pretty good job of working through the tardy Fed moves.

January Effect seasonality was expected (at least here) to boost prices, and it has been opposed and choppy (wore me out); but evolves as desired. That is what will collide with perhaps typical pullback action from early February or so but that also is TBD (to be determined). The hook will be a modest setback or two from higher-than-now levels, and then off to the races with a Spring rally.

I realize it might not work out; but 'if' the Fed stops excessive liquidity drains (I note they were hesitant to start unwinding); then the bearish case is toast; but we are not yet at the point to proclaim that. There is a 'bearish alternative' if the Fed truly wishes to money-hammer the American people; so stay tuned.

For the new week, early dip or not; market tries higher; not so much VIX, yet.

More By This Author:

Market Briefing For Thursday, Jan. 19
Market Briefing For Wednesday, Jan. 18
Market Briefing For Tuesday, Jan. 17