Market Wrap – Amber Alert for Markets as QT Kicks in, June 1, 2022

June kicks off with QT with the stock market major averages finishing near yesterday’s lows. The S&P 500 lost 0.8% and the Russell 2000 lost 0.5%. That little Crypto rally ran out gas pretty quickly, Bitcoin fell back through $BTC $30,000 to be down 6.25% on the day. The financial sector (-1.7%) underperformed throughout the day after rallying off a 13-month low at the end of May.

Energy (+1.8%) added to its gain as the session went on supported by another uptick in crude oil, which climbed $0.40, or 0.4% to $115.33/bbl. Salesforce (CRM 176.07, +15.83, +9.9%) and HP (HPQ 40.34, +1.50, +3.9%) pockets of relative strength throughout the day after both companies reported better than expected quarterly results. Archer-Daniels (ADM 86.67, -4.15, -4.6%) was the worst performer among staples.

Treasuries added to their losses from yesterday with shorter tenors leading the retreat. The 2-yr yield rose 11 bps to 2.65% while the 10-yr yield rose nine basis points to 2.93%.

We talk through to today’s action and where to now ….

Enjoy live commentary from Our Trading Room at YouTube as the day wraps up – feel free to like and share

Live on YouTube

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 the Fed, geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. After hours earnings and chart pattern review. This is a high-risk market.


Market Closes

Energy

  • Crude Oil Futures settled settle ahead of API at $115.26 Up $0.59 or 0.51%
  • CL_F low for the day 114.58. The high for the day 117.8
  • WTI off the high price of $129.44. The highest in 2008 was $147.27.
  • Brent Crude Futures 115.77 -0.52 -0.45
  • Natural Gas Futures 8.757 0.612 7.51
  • Unleaded Gasoline Futures 4.0604 0.1442 3.68
  • Rystad Energy said the war-induced uncertainty is likely to continue to impact gas prices. “The gas market remains highly volatile, and news driven,” said Rystad analyst Fabian Rønningen. This week, in particular, “the market remains anxious for clarity on rules governing ruble payments for Russian gas supplies.”

Commodities and FX

  • The U.S. Dollar Index is up about +0.8% to $102.56.
  • Gold futures settled $0.30 higher (flat) to $1,848.70/oz.
  • Silver Futures 21.865 0.177 0.82
  • Copper Futures 4.3265 0.0305 0.71
  • Corn Futures 729.75 -23.75 -3.15
  • Wheat Futures 1041.25 -46.25 -4.25
  • Bloomberg Commodity Index 132.80 1.46 1.11
  • Bitcoin USD 29656 12 0.04
  • Ethereum USD 1794.11 -0.11 -0.01
  • Ripple USD 0.3937 -0.0011 -0.27

Stocks

US Indices & S&P 500 sector watch:

  • Dow industrial average -176.91 points or -0.54% at 32813.22
  • S&P index -30.92 points or -0.75% at 4101.24
  • NASDAQ index -86.92 points or -0.72% at 11994.47
  • Russell 2000-9.218 points or -0.49% at 1854.82
  • NYSE Composite 15709.61 -117.44 -0.74
  • CBOE Volatility 25.69 -0.50 -1.91
  • NYSE Adv 1274 Dec 1917 Vol 997.2 mln
  • Nasdaq Adv 1544 Dec 2609 Vol 4.65 bln
  • S&P Sector industrials (-0.6%), consumer discretionary space (-0.8%) technology sector (-0.3%). Chipmakers failed sending the PHLX Semiconductor Index lower by 1.6%. Health care (-1.4%) and consumer staples (-1.3%).
  • On the upside, energy (+1.8%)

Key After Hours


  • C3.ai (AI) beats by $0.08, beats on revs; guides JulQ revs below consensus; guides FY23 revs below consensus… AI down 20.1%
  • Chewy (CHWY) beats by $0.17, reports revs in-line; guides JulQ revs in-line; reaffirms FY23 revs guidance… CHWY up 19.4%
  • Credo Technology Group (CRDO) beats by $0.02, beats on revs; guides Q1 revs above consensus… CRDO up 16.1%
  • Elastic (ESTC) beats by $0.05, beats on revs; guides Q1 EPS in-line, revs above consensus; guides FY23 EPS in-line, revs above consensus… ESTC up 3.9%
  • GameStop (GME) misses on EPS, beats on revs… GME up 0.7%
  • Hewlett Packard Enterprise (HPE) misses by $0.01, misses on revs, as-a-service orders increased 107%; guides Q3 EPS in-line; guides FY22 EPS in-line, reiterates revenue growth of 3-4%, adjusted for currency… HPE down 6.9%
  • MongoDB (MDB) beats by $0.30, beats on revs; guides JulQ EPS below consensus, revs above consensus; guides FY23 EPS above consensus, revs in-line… MDB up 6.0%
  • NetApp (NTAP) beats by $0.14, reports revs in-line; guides JulQ EPS in-line, revs in-line; guides FY23 EPS in-line, revs in-line… NTAP up 3.3%
  • Oracle (ORCL) obtains approvals for proposed acquisition of Cerner (CERN)… no indication for ORCL; CERN up 0.2%
  • Pure Storage (PSTG) beats by $0.20, beats on revs; guides Q2 revs above consensus; guides FY23 revs above consensus… PSTG up 8.5%
  • SentinelOne (S) beats by $0.03, beats on revs; guides Q2 revs above consensus; guides FY23 revs above consensus… S down 2.0%
  • UiPath (PATH) beats by $0.03, beats on revs; guides JulQ revs in-line; guides FY23 revs above consensus… PATH up 5.3%
  • Veeva Systems (VEEV) beats by $0.07, beats on revs; guides Q2 EPS above consensus, revs in-line; guides FY23 EPS above consensus, revs in-line… VEEV up 3.3%

US Markets YTD

  • Dow Jones Industrial Average -9.3% YTD
  • S&P 500 -13.3% YTD
  • S&P 400 -11.5% YTD
  • Russell 2000 -16.6% YTD
  • Nasdaq Composite -22.8% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

Index – Last – Chg – % Chg

Europe

  • UK: FTSE 100 7532.95 -74.71 -0.98
  • Germany: DAX 14340.47 -47.88 -0.33
  • France: CAC 40 6418.89 -49.91 -0.77
  • Italy: FTSE MIB 24283.56 -221.52 -0.90
  • Spain: IBEX 35 8747.20 -104.30 -1.18
  • Stoxx Europe 600 438.72 -4.63 -1.04
  • Switzerland: Swiss Market 11494.12 -117.26 -1.01
  • DJIA 32813.23 -176.89 -0.54

Asia

  • Japan’s Nikkei: +0.7%
  • Hong Kong’s Hang Seng: -0.6%
  • China’s Shanghai Composite: -0.1%
  • India’s Sensex: -0.3%
  • South Korea’s Kospi: CLOSED
  • Australia’s ASX All Ordinaries: +0.1%

Recall in January: 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

Bonds

U.S. Treasuries added to their losses from yesterday with shorter tenors leading the retreat. The 2-yr yield rose 11 bps to 2.65% while the 10-yr yield rose nine basis points to 2.93%.

  • 2-yr: +11 bps to 2.65%
  • 3-yr: +13 bps to 2.84%
  • 5-yr: +13 bps to 2.94%
  • 10-yr: +9 bps to 2.93%
  • 30-yr: +2 bps to 3.08%

What You Need Know About Quantitative Tightening QT Bifurcations Explained – TRADERS COMMUNITY

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%.

News Highlights

Market Notables

  • Salesforce, Inc. (CRM 174.45, +14.21, +8.9%): beats by $0.04, reports revs in-line; guides Q2 EPS below consensus, revs below consensus; raises FY23 EPS guidance above consensus, raises non-GAAP operating margin guidance, lowers revenue guidance below consensus
  • Ambarella (AMBA 80.40, -4.82, -5.7%): beats by $0.07, reports revs in-line; guides JulQ revs below consensus
  • HP, Inc. (HPQ 39.10, +0.26, +0.7%): beats by $0.03, beats on revs; guides JulQ EPS mostly above consensus; guides FY22 EPS mostly above consensus
  • Victoria’s Secret (VSCO 45.00, +3.79, +9.2%): beats by $0.27, reports revs in-line; guides Q2 EPS in-line, revenue in-line
  • Meta Platforms (FB 194.59, +0.95, +0.5%): Supreme Court blocks Texas law that would ban social media companies from removing certain posts, but it could soon return to the Supreme Court, according to New York Times
  • Reviewing overnight developments:

USA

Europe

Asia

  • Moody’s noted that easing measures in China have not translated into higher property sales yet.
  • China’s May Caixin Manufacturing PMI rose to 48.1 from 46.0 (expected 48.0).
  • Japan’s May Manufacturing PMI rose to 53.3 from 53.2.
  • South Korea’s May trade deficit reached $1.71 bln (expected deficit of $2.59 bln; last deficit of $2.51 bln) as imports grew 32.0% yr/yr (expected 31.9%; last 18.6%) and exports rose 21.3% yr/yr (expected 19.3%; last 12.9%).
  • India’s May Nikkei Markit Manufacturing PMI dipped to 54.6 from 54.7 (expected 54.2).
  • Australia’s Q1 GDP expanded 0.8% qtr/qtr (expected 0.5%; last 3.6%), growing 3.3% yr/yr (expected 2.9%; last 4.4%).
  • Hong Kong’s April Retail Sales rose 11.7% yr/yr (last -13.8%).
  • Australia Current Account Surplus Twelfth Straight in Q1 2022 but Lowest Since Q4 2019 – TRADERS COMMUNITY

Looking ahead:

The Day Ahead:

  • Traders Market Weekly: Memorial Weekend a Time for Reflection – TRADERS COMMUNITY
  • Monday: Bond and equity markets closed for Memorial Day
  • Tuesday: March FHFA Housing Price Index (prior 2.1%) and March S&P Case-Shiller 20-city Home Price Index (prior 20.2%) at 9:00 ET; May Chicago PMI (prior 58.5) at 9:45 ET; May Consumer Confidence (prior 107.3) at 10:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -1.2%) at 7:00 ET; final May IHS Markit Manufacturing PMI (prior 57.5) at 9:45 ET; April job openings (prior 11.549 mln), April Construction Spending (prior 0.1%), and May ISM Manufacturing Index (prior 55.4%) at 10:00 ET
  • Thursday: May ADP Employment Change (prior 247,000) at 8:15 ET; weekly Initial Claims (prior 210,000), Continuing Claims (prior 1.346 mln), revised Q1 Productivity (prior -7.5%), and revised Q1 Unit Labor Costs (prior 11.6%) at 8:30 ET; April Factory Orders (prior 2.2%) at 10:00 ET; weekly natural gas inventories (prior +80 bcf) at 10:30 ET; and weekly crude oil inventories (prior -1.02 mln) at 11:00 ET
  • Friday: May Nonfarm Payrolls (prior 428,000), Nonfarm Private Payrolls (prior 406,000), Average Hourly Earnings (prior 0.3%), Average Workweek (prior 34.6), and Unemployment Rate (prior 3.6%) at 8:30 ET; final IHS Markit Services PMI (prior 53.5) at 9:45 ET; and May ISM Non-Manufacturing Index (prior 57.1%) at 10:00 ET

Earnings:

  • Monday (May 30)
    • Pre-Market: None
    • After-Hours: None
  • Tuesday (May 31)
    • Pre-Market:  BEKE
    • After-Hours:   AMBA APPS HPQ CRM SPWH VSCO
  • Wednesday (June 1)
    • Pre-Market:  CPRI CONN DCI WB
    • After-Hours: AI CHWY CRDO DSGX ESTC GME HPE MDB NCNO NTAP PSTG PVH SMTC S PATH VEEV
  • Thursday (June 2)
    • Pre-Market:  CAE CIEN DBI HRL SCWX SPTN TTC
    • After-Hours: ASAN CVGW COO CRWD JOAN LULU OKTA PD PHR RH ZUMZ
  • Friday (June 3)
    • Pre-Market:  None
    • After-Hours: None

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!