Stock markets in the US opened sharply down with end of the world calls about Russia at war, Omicron and rising interest rates. The small cap Russell 2000 outperformed with a 2.3% gain after being down as much as 2.8%. CBOE Volatility Index closed at 29.90+3.6% after being over 35%. At the lows the Nasdaq Composite was down 19.2% from its all-time high, the S&P 500 was down 12.4% from its all-time high and the Russell over 20% down. We look at $TSLA, $AAPL and $IBM in the podcast. Oil moved around with geopolitical risks in the Ukraine and risk assets bouncing $2 off the lows. Kohl’s KSS 63.71, +16.87+36.0% after confirming takeover interest. CME’s FedWatch Tool is pricing in the probability of four rate hikes in 2022. Market chatter continues of the Fed raising the target range for the fed funds rate by 50 basis points at its March meeting.
Enjoy live commentary from Our Trading Room at YouTube as the day wraps up – feel free to like and share
In today’s post market wrap live from the trading room traders discuss the patterns through the options and futures markets that have played out perfectly from last week to today. We discuss trading psychology, risk management and trader development in today’s markets. Listen to our technical and market psychology read on the day. Join the Traders Community Podcast crew @traderscom @knovawave @Mahdavi4 @MetaJohnny1 plot out 2022.
Around the table today was packed with geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. De-risking may threaten progress that has been achieved on since the COVID bailout. It also has the potential to reverse some of the progress made in proecting downside risk if banks close or restrict access to money.
- March WTI crude oil (CLH22) settled down -1.83 (-2.15%) to $83.31 on the day. The low $81.90. Last week the high price reach reached $87.10, a new seven year high. The low last week was on Monday at $81.58.
- Baker Hughes reported Friday that active U.S. oil rigs in the week ended Jan 21 fell by -1 rig to 491 rigs, down slightly from the prior week’s 1-3/4 year high of 492 rigs. U.S. active oil rigs have risen sharply from the Aug-2022 15-year low of 172 rigs, signaling an increase in U.S. crude oil production capacity.
- March RBOB gasoline (RBH22) closed down -4.44 (-1.81%).
- February Nymex natural gas (NGG22) on Monday closed up by +0.028 (+0.70%).
- Freezing temperatures as a major winter storm sweeps the U.S. Maxar said warmer-than-normal temperatures are expected for the Northeast from Feb 3-7, which would curb heating demand for natgas.
- BNEF data showed gas flows to U.S. export terminals Monday were up +25.5% y/y at 12.92 bcf, just below the Dec 19 record of 13.1 bcf.
- Baker Hughes reported Friday that the number of active U.S. natgas drilling rigs in the week ended Jan 21 rose by +4 rigs to a 2-year high of 113 rigs. Active rigs have recovered sharply from the record low of 68 rigs posted in July 2020 (data since 1987).
Metals and FX
- The U.S. Dollar Index rose 0.3% to 95.92.
- February gold (GCG22) on Monday closed up +9.90 (+0.54%)
- March silver (SIH22) closed down -0.520 (-2.14%).
- Bitcoin up at 36039 after breaking through 39600 low
- Again, the declines in stocks despite lower interest rates suggesting safe haven buying or bond v equity asset allocation.
- The Dow and S&P had their worst week since October 20, 2020
- Dow industrial average rose 99.11 points or 0.29% at 34364.51. Dow was down -1115.04 points or -3.25%. It fell 1600 points or -4.57% last week. The Dow is down -6.18% from its all-time high at 36952.65.
- S&P rose 12.19 points or 0.28% at 4410.14, was down -176.39 points or -4.01% well under its 100 dma at 4575.95. The S&P fell -5.68% last week. The S&P is down -7.07% from its all-time high at 4818.62.
- NASDAQ index rose 86.22 points or 0.63% at 13855.14. The NASDAQ was down -674.2 points or -4.9%. Last week the NASDAQ fell -7.53% The NASDAQ index is down 15.1% from its all-time high seen in November.
- Russell 2000 increased 45.59 points or 2.29% at 2033.511 off the low, the Russell 2000 traded at 1931.43. Closed -15.16% from its all-time high. The Russell 2000 closed off its 52-week low.
- CBOE Volatility 29.90, +1.05, +3.6%
- NYSE Adv 1459 Dec 1804 Vol 1.5 bln
- Nasdaq Adv 2159 Dec 1710 Vol 6.9 bln
Recall Last Week: JP Morgan quant maestro Marko Kolanovic was out with a comment near lows that didn’t go unnoticed.
“Near term we recommend buying the dip on US indices given oversold conditions… though medium term we favor EM/China/Europe on a regional basis on improving activity and easing headwinds, and the UK on valuation.”Marko Kolanovic Jan 10 2022
- We stay positive on equities and expect omicron will ultimately prove a positive for risk assets, as this milder but more transmissible variant speeds the transition from pandemic to endemic with a lower human toll,
- As this wave fades, it will likely mark the end of the pandemic
- omicron’s lower severity and high transmissibility crowds out more severe variants and leads to broad natural immunity
- signs of supply constraints potentially passing their worst point
Recall back in October he said to buy the dip because fears of higher yields were overdone adding the market could absorb higher yields. “We don’t expect a broad market selloff unless yields were to rise above 250-300 bps (US 10y), which we don’t foresee in the near term,” From there the S&P 500 rose 11.5%.
Perhaps this time it’s’ different but nevertheless the algorithms liked it that day but from then ……… not so much
Ark of the Covenant not as it appears
- ARKK 73.54▲ 2.02 (2.82%)
- ARKG 48.12▲ 1.51 (3.25%)
- ARKX 16.49▲ 0.02 (0.12%)
- ARKF 31.31▲ 0.30 (0.97%)
- ARKW 92.88▲ 1.64 (1.80%)
Cboe Daily Market Ratios:
S&P 500 sector watch:
- 8 of the 11 S&P 500 sectors closed higher
- Consumer discretionary sector (+1.2%)
- Defensive-oriented utilities (-1.0%), health care (-0.4%), and consumer staples (-0.4%) sectors closed lower.
- Dow Jones Industrial Average -5.4% YTD
- S&P 500 -7.5% YTD
- Russell 2000 -9.4% YTD
- Nasdaq Composite -11.4% YTD
- STOXX Europe 600: +0.5%
- Germany’s DAX: +0.5%
- U.K.’s FTSE 100: +0.9%
- France’s CAC 40: +0.9%
- Italy’s FTSE MIB: +0.2%
- Spain’s IBEX 35: +0.9%
- Japan’s Nikkei: -1.7%
- Hong Kong’s Hang Seng: -1.7%
- China’s Shanghai Composite: -2.6%
- India’s Sensex: +0.6%
- South Korea’s Kospi: -2.6%
- Australia’s ASX All Ordinaries: -2.6%
- U.S. Treasuries finished the week firmly higher with longer tenors reclaiming losses from recent days. The 2-yr note continued its rebound but could not avoid its fifth consecutive weekly loss.
- 10-yr yield declined just one basis point to 1.74% after trading at 1.71% during the day
- 2-yr yield declined two basis points to 0.97%.
- Strong U.S. 20-year Treasury Bond Auction with High Yield of 2.210% – TRADERS COMMUNITY
Odds of a March 15-16 FOMC meeting via the CME FedWatch Tool:
- There is a 100% probability of a rate hike of at least 25 basis points in March to 0.25-0.50%.
- There is a 93.4% probability of a rate hike to 0.50-0.75% in June.
- There is an 80.2% probability of a rate hike to 0.75-1.00% in September.
- There is a 74.9% probability of a rate hike to 1.00-1.25% in December.
Fed announce planned $40B QE purchases from January 14 to February 11
The Fed taper is at $40B per month and is supposed to be reduced by another $20B in February. If they continue that schedule, the taper will be down to $0 in March. The taper would be complete, and the Fed can look to tighten.
What a world we live in the Fed is to continue to buy treasuries, whilst debating balance sheet reduction at the same time. Confusing?
Fed officials saying policy is accommodative, inflation is not transitory. We may need to tighten 4 times in 2022, but we will continue to buy bonds and mortgages at a $40B and then $20B clip.
Granted, it is small change vs what it was, and the balance sheet is near $9T so what’s another $60B or so, but if you are looking to stop accommodation, stop the extra accommodation.
As a result, one of the risks into the next meeting is if the Fed just says “we will not be buying any more treasuries after this tranche is complete”.
Most of us are familiar with QE but what is QT? When the Fed reduces its balance sheet it is known as quantitative tightening, the flipside of quantitative easing. The US Federal Reserve at its December FOMC put the world on notice that tighter financial conditions are ahead. What does it mean? The possible Bifurcations would make Mandelbrot wince.
Where did it all start?
The Federal Reserve System Chairman Jerome Powell took a decidedly hawkish tone today at last month’s FOMC and the release of Minutes which sent US stock markets sharply lower. That day in the Treasury market the 2-yr yield, which tracks expectations for the fed funds rate, rose seven basis points to 0.83%. The 10-yr yield settled the session four basis points higher at 1.71%, with growing expectations for a run-up to 2.00%.
- Morgan Stanley Revenue Increased in Wealth Management and Investment Management – TRADERS COMMUNITY
- Bank of America Consumer and Global Banking Earnings Expected to Gain with Higher Interest Rates – TRADERS COMMUNITY
- Goldman Sachs Miss Earnings Expectations First Time in Seven Quarters as Trading Revenue Fell – TRADERS COMMUNITY
- BlackRock Delivers Fourth Quarter Earnings in A Changing Interest Rate Environment – TRADERS COMMUNITY
- Citigroup Fourth Quarter Earnings Challenged by Consumer Banking Restructure – TRADERS COMMUNITY
- Wells Fargo Under New Management Deliver Fourth Quarter Earnings – TRADERS COMMUNITY
- World’s Biggest Bank JPMorgan Kicks Off Fourth Quarter Earnings Season – TRADERS COMMUNITY
- Big Banks JPMorgan, Citi and Wells Fargo Kick Off Earnings Season with Blackrock – TRADERS COMMUNITY
- Johnson & Johnson (JNJ 160.00, -2.97): -1.8% despite beating EPS estimates on below-consensus revenue and guiding FY22 EPS and revenue above consensus.
- IBM (IBM 131.00, +2.18): +1.7% after beating top and bottom-line estimates, although the company expects software segment growth to be at the low end of the mid-single-digits.
- American Express (AXP 160.00, +1.07): +0.7% after posting better than expected Q4 results, guiding revenue above consensus, and announcing plans to increase its dividend by approximately 20%.
- Verizon (VZ 53.25, +0.29): +0.6% after beating EPS estimates and guiding FY22 EPS above consensus.
- 3M (MMM 176.00, +3.20): +1.9% after beating EPS estimates.
- NVIDIA (NVDA 224.10, -9.62): -4.1% amid a report from Bloomberg indicating that the company is getting ready to end plans for its acquisition of Arm Holdings.
- Germany’s January ifo Business Climate Index 95.7 (expected 94.7; last 94.8). January Current Assessment 96.1 (expected 96.3; last 96.9) and Business Expectations 95.2 (expected 93.0; last 92.7)
- U.K.’s December Public Sector net borrowing GBP16.10 bln (expected GBP15.22 bln; last GBP14.00 bln) and January CBI Industrial Trends Orders 24 (expected 22; last 24)
- Spain’s December PPI 35.9% yr/yr (last 32.2%)
- Japan’s December BoJ Core CPI 0.9% yr/yr (expected 0.7%; last 0.8%)
- South Korea’s Q4 GDP 1.1% qtr/qtr (expected 0.9%; last 0.3%); 4.1% yr/yr (expected 3.7%; last 4.0%)
- Australia’s Q4 CPI 1.3% qtr/qtr (expected 1.0%; last 0.8%); 3.5% yr/yr (expected 3.2%; last 3.0%). December NAB Business Survey 8 (last 12) and NAB Business Confidence -12 (last 12)
US CPI in December rose 0.5% m/m in December (consensus +0.4%). Core CPI rose 0.6% (consensus +0.5%). On a year-over-year basis, total CPI is up 7.0% (versus 6.8% in November) and core CPI is up 5.5% (versus 4.9% November). Inflation remains persistently high as Central Bankers keep trying to reassure us that soaring inflation will come under control.
US in December added 199k non-farm payrolls jobs, less than forecasted 450k. November previous 210K revised to +249K. Wages increased more than expected and the jobless rate fell to the lowest since February 2020 to 3.9%. US Average Hourly Earnings (M/M) rose 0.6%. Change in private payrolls +211K Change in manufacturing payrolls +26K
Earnings we are watching before tomorrow’s open:
Trust you all had a great day, sleep well and get your trading plan sorted.
Any questions please feel free to ask them below. Trade Smart!