If you've been following the Nasdaq this week, here's something the Fed might do tonight that could make you reconsider in the next two minutes.

I didn't dare to chase this nine-day rally. The Nasdaq has risen for nine consecutive days, and the fear index has climbed from 22 to 41. Everyone is saying the AI bull market is back. However, the Fed announced tonight that it will 'significantly reduce' bond purchases after April, something few people have noticed.

First, let's talk about where today's gains came from

The Nasdaq's nine-day rally is the longest streak in two years. The S&P 500 has recovered all its losses since the US-Iran conflict. The semiconductor index SMH (an ETF tracking chip stocks) has risen above 9,000 points.

The most obvious sign is that money is moving. The technology sector XLK rose 2.10%, while utilities XLU fell 1.21%—this 3.3 percentage point gap indicates that investors are shifting from defensive assets to offensive assets, becoming more optimistic about the market outlook.

A few specific examples:

• Oracle announced a 2.8GW fuel cell (clean energy power generation equipment) order to power AI data centers. 2.8GW is equivalent to the power output of 5-6 nuclear power plants, addressing the power supply bottleneck for AI computing. Its stock price rose 12%.

• SanDisk (a memory chip company) has risen over 300% this year and is about to be included in the Nasdaq 100 index (the 100 largest companies on Nasdaq). Inclusion means funds tracking this index must buy, bringing in more capital.

• The Fear & Greed Index (a measure of market sentiment, 0=extreme fear, 100=extreme greed) has risen from 22 to 41, approaching the neutral line of 50.

What it means for you: If you hold AI-related stocks (NVIDIA, AMD, Microsoft, etc.), this rally is good news for you. But the Fed's upcoming move, which we'll discuss next, could affect whether this rally can be sustained.

The Fed is doing the opposite

Tonight, the Fed reiterated that it will 'significantly reduce' its monthly $40 billion bond purchase program after April. RMP (Reserve Management Purchases) sounds technical, but simply put, it's the Fed buying $40 billion in Treasury bonds each month, injecting liquidity into the market.

This is not QE (quantitative easing), but technical liquidity management. However, the effect is similar—more money enters the market, pushing up stock prices. Wall Street expects the purchase size may be halved after April, from around $40 billion to $20 billion.

The contradiction is here: The market is celebrating abundant liquidity, but the Fed is already preparing to reduce liquidity injections.

Why the timing matters

This nine-day rally essentially bets on three assumptions holding true simultaneously:

Geopolitical risks are controllable (the US-Iran conflict won't spiral out of control).
AI fundamentals are strong (demand is real, not a bubble).
The liquidity environment is friendly (the Fed won't tighten excessively).

The first two still hold for now. Oracle's 2.8GW order and SanDisk's 300% gain prove that AI demand is real. There are also signals of US-Iran negotiations. But for the third assumption, the Fed gave a different signal tonight.

Another detail: A fear index of 41 isn't safe. Historically, this index needs to break above 50 to truly exit the fear zone. 41 is just 'less fearful,' not 'starting to be optimistic.' At this sensitive juncture, the impact of changes in liquidity policy will be amplified.

What you can do

If you've recently chased AI stocks: Check your reason for buying. Was it because of the 'nine-day rally trend' or because you believe in AI fundamentals? If it's the former, be cautious of the dual pressure from fading gains and marginally tightening liquidity.

If you haven't entered yet: Consider waiting until the fear index breaks above 50, or until the Fed's April bond purchase policy becomes clear. Right now, it's a battle between 'reasons to rise' and 'Fed action.'

If you're bullish on AI long-term: Short-term volatility doesn't change the long-term trend. Oracle and SanDisk's performance proves demand is real. But choosing the right entry timing is still very important.

My choice: Wait until the fear index passes 50. Are you betting on the inertia of the nine-day rally, or betting that the Fed can hold its breath until May? It's one or the other, no middle ground.

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