Santoli: Uncertainty dominates as investors confront bottle-rocket market rallies and air pockets

Published Wed, Apr 27 20222:37 PM EDTUpdated Wed, Apr 27 20222:38 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. There is whippy, agitated action as the market tests the low end of its unsettled three-month trading range. The market is benefiting from three of the prior four sessions being one-sided selling stampedes, leaving parts of the market looking "sold out" for now, even if the indexes and some internal measures are still short of dramatic oversold readings. The jumpy moves – bottle-rocket rallies followed by air pockets – show that investors are unusually uncertain about the market trend and macro outlook, which means prices have to move far and fast as they search for buyers and sellers with any conviction. S & P 500 hanging around the intraday lows from late January and in the zone of the February and March low ticks. Sentiment and hedge-fund positioning are surely depressed enough to allow for a bounce, and earnings have been more reassuring than alarming given the set-up. But the burden of proof is high on any rebound rallies. So far, they've failed around 4,600 on the S & P 500 – roughly the down-5% level from the record highs. Need to push above 4,550-ish now to escape the current downtrend, a 7% to 8% jump from here. Perhaps relevant: The January bounce from similar levels happened after intraday/closing lows from Jan. 24 to Jan. 27. It really got going after all the mega-cap tech names had reported earnings. Big catalysts cleared away by the end of that week lifted some pressure. A secondary point: The market rallied on the expected Federal Reserve rate hike in March that it had worried over for weeks before. Next week is a Fed meeting with an expected half-point hike. What investors in Big Growth want more than anything from earnings reports is evidence that nothing much has changed about the long-term trends the dominant companies are riding. Microsoft delivered pretty much this " same old story " with its earnings, while Alphabet confirmed elevated fears of some pinch points in the business. MSFT forward price-earnings is down to 26-ish from a high in the mid-30s, around pre-pandemic levels. Right now, the Street is most wary of digital-ad platforms, video-streaming and anything in the way of TikTok. YouTube is all three. Still, the stock had priced in some noise, and many will tell you it's looking cheap. It hasn't helped FB holders, but GOOGL at 19x earnings with a hefty buyback and resilient search results retains its fans. It would be good to have the sell-side moderate its bullishness on GOOGL a bit (universal, stale buy ratings still), but you can't have it all. It's worth noting that the downside leadership in tech has entirely been about retracing its massive outperformance and valuation premium leading up to this year. Here's the Nasdaq 100 relative to the equal-weight S & P 500, now at an uptrend line dating back five years. Market breadth is good, not great. VIX is down three points, a plus but still elevated at 30 – market remains on alert. Credit markets are OK, no alarms sounded there.

Traders on the floor of the NYSE, April 4, 2022.

Source: NYSE

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.