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Morning Notes — Bounce and Software

Bounce and Software

January 11, 2022

Yesterday’s reversal and today’s follow through in Tech has been chalked up to deeply oversold conditions, but conditions were not/are not deeply oversold. ‘Stretched’ is probably a better characterization, but none of our indicators reached oversold status.  Markets don’t need to reach oversold levels before moving higher, but ‘oversold’ entry points only improve conviction.  The SPX staged a 2% intraday reversal and the NDX saw a reversal of nearly 3%.  The reversal in the NDX came at our predetermined support zone and may have been triggered by dealer gamma positions and increased retail investor buying. Flow data suggests retail investor bought ~$1.07B of equities yesterday (93rd percentile), which was the third consecutive day over $1B. The fact isn’t that significant, but retail investors are generally considered more emotional than institutional investors, which adds a bit more skepticism to the rebound.  Tech/software continues to lead in day two of the rebound ahead of our second weekly catalyst, tomorrow’s release of December CPI.  

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