Market Wrap – Bounce Runs into The Metaverse & Nattyverse

Stock markets rallied for the fourth day Wednesday fueled by the strong Alphabet and AMD earnings and delta covering over the SPX 4500 level. OPEC came and went with WTI still over $88. In the Nattyverse futures March Nymex natural gas on Wednesday closed up by +0.750 +15.79% as bitterly cold weather pressures ahead of the EIA storage report. After hours Meta Platforms, formerly known as Facebook, got wrecked for 20% after missing earnings and poor guidance. Earlier today PayPal lost around 25% after warnings. This is a high-risk earnings season. Another Bear Market rally or something more after initially soaring on BTFD. We look at the indices, $AAPL, FB, Gold, Copper, BTC, ETH, Natgas and oil in the podcast.

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 & Kimo plot out 2022.

Around the table today was packed with our outlook on the Fed Reserve FOMC, Ukraine and US energy policy and global disorder. Topics included the Fed, 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 protecting downside risk if banks close or restrict access to money.


Market Closes

Energy

  • March WTI crude oil (CLH22) settled lower by 0.1%, or $0.04, to $88.17/bbl.
  • OPEC+ reaffirmed its decision to increase production by 400,000 barrels per day in March while the EIA reported an unexpected draw in weekly crude inventories (1.05 million). 
  • March RBOB gasoline (RBH22) closed up +3.18 (+1.23%).  
  • Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Jan 28 rose by +4 rigs to a 1-3/4 year high of 495 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 Nymex natural gas (NGH22) on Wednesday closed up by +0.750 (+15.79%).
  • The Commodity Weather Group on Wednesday said that below-normal temperatures would descend from Texas to Maine from Feb 12-16.  Nat-gas prices are also climbing on concern that a cold snap in Texas will freeze wells and disrupt natgas production.
  • Geopolitical concerns in Ukraine are underpinning European gas prices and sparked short covering in U.S. natgas prices.  Goldman Sachs warned last Monday that Russian gas flows to Europe could be curtailed for “an indefinite period” if sanctions hit Russia’s Nord Stream 2 natgas pipeline to Germany due to escalating tensions over Ukraine.
  • BNEF data showed gas flows to U.S. export terminals Wednesday were up +14% y/y at 12.15 bcf, just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The dollar index (DXY00) fell 0.4% to 95.99 amid relative strength in the euro from ECB rate-hike expectations. 
  • April gold (GCJ22) settled $8.80 higher (+0.5%) to $1,810.30/oz the third consecutive gain.
  • March silver (SIH22) closed up +0.112 (+0.50%). 
  • Bitcoin down -4.82% at 36,922

Blockchain Bridge Wormhole Suffers Possible Exploit Worth Over $326M

The popular bridge for connecting Ethereum, Solana and more is now attempting to negotiate on-chain with the hacker.

On-chain analysts called attention to an 80,000 ether (ETH) transaction from Wormhole to an address currently in possession of over $250 million worth of ETH.

According to another developer, the attacker also kept 40,000 ETH on Solana, where they have been selling for other assets.

Stocks

For The Day

  • Dow industrial average  rose 224.09 points or 0.63% to 35629.34. The Dow all-time high close at 36952.65.
  • S&P index rose 42.84 points or 0.94% to 4589.37 The S&P all-time high close at 4818.62.
  • NASDAQ rose 71.55 points or 0.50% at 14417.56 The Nasdaq all-time high.
  • Russell 2000 fell -21.22 points or -1.03% to 2029.51 The Russell 2000
  • CBOE Volatility Index VIX 24.83AT CLOSE‎ -2.83 (‎-10.23%)
  • NYSE Adv 2673 Dec 621 Vol 1.4 bln
  • Nasdaq Adv 3564 Dec 805 Vol 5.0 bln

S&P 500 sector watch:

  • 10 of the 11 S&P 500 sectors closed higher
  • The S&P 500 communication services sector, (Alphabet is in the index), rose 3.1%
  • The other sectors also closed higher, except for consumer discretionary down -0.5%

Ark of the Covenant not as it appears

ARK ETF

  • ARKK 73.14▼ 3.94 (5.11%) v prior 75.32▲ 6.41 (9.30%)
  • ARKG 49.16▼ 1.60 (3.15%) v prior 49.70▲ 3.76 (8.18%)
  • ARK X 16.35▼ 0.18 (1.09%) v prior 16.40▲ 0.58 (3.67%)
  • ARK F 31.35▼ 2.09 (6.25%) v prior 32.56▲ 2.59 (8.64%)
  • ARK W 92.13▼ 4.84 (4.99%) v prior 94.71▲ 7.44 (8.53%)

US Markets YTD

  • Dow Jones Industrial Average -2.0% YTD
  • S&P 500 -3.7% YTD
  • Nasdaq Composite -7.9% YTD
  • Russell 2000 -9.6% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: +0.7%
  • Germany’s DAX: Unchanged was up 0.78% at the highs
  • U.K.’s FTSE 100: +0.8% was up 1.03% at session highs
  • France’s CAC 40: +0.35% was up 0.72% at its highs
  • Italy’s FTSE MIB: +0.7% was up 1.21% at the session highs
  • Spain’s IBEX 35: unchanged was up 0.67% at session highs

Asia

Lunar New Year sees China’s Shanghai Composite will be closed throughout the week.  Markets in China, South Korea, Singapore, and Hong Kong were closed. 

  • Japan’s Nikkei: +1.7%
  • Hong Kong’s Hang Seng: CLOSED
  • China’s Shanghai Composite: CLOSED
  • India’s Sensex: +1.2%
  • South Korea’s Kospi: CLOSED
  • Australia’s ASX All Ordinaries: +1.2%

Recall Last Month: 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

US For January

  • S&P and Nasdaq have their worst month since March 2020
  • Nasdaq has its worst January since 2008
  • S&P and Nasdaq have their best 2-day gain since November 2020
  • Tesla fell 11% in January
  • Amazon fell 10%.
  • Dow, -3.32%. The Dow was down -8.77% at the month’s low
  • S&P -5.3%. The S&P was down -11.4% at the month’s low
  • Nasdaq -8.98%. The Nasdaq was down -16.3% at the month’s low
  • Russell 2000, -9.8%. It was down -15.34% at the month’s low

Bonds

U.S. Treasuries saw some demand from buyers amid the geopolitical risks and the shocking ADP employment data. The 2-yr yield fell one basis point to 1.15%, and 10-yr yield fell two basis points to 1.77%.

  • 2-yr: -1 bp to 1.15%
  • 3-yr: -3 bps to 1.36%
  • 5-yr: -2 bps to 1.60%
  • 10-yr: -3 bps to 1.77%
  • 30-yr: -3 bps to 2.09%

Fed 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”.

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%.

Earnings

News Highlights

USA

Around The Barrel – U.S. Crude Oil SPR Stocks Fell to Lowest Since October 2002 with Oil Price at Seven Year High – TRADERS COMMUNITY

Busy time in oil, OPEC+ has agreed to increase oil output by 400,000 BPD from March as expected. The oil majors’ earnings season has begun, kicked off by Chevron and Exxon and we got to see their production and capital expenditure plans. WTI Oil futures trade near 7-year highs with global tensions despite derisking in stock markets as the Macro world unravels with Omicron, Ukraine, Kazakhstan and the Middle East. EIA reported US Crude last Week crude drew -1047Kbbl (incl -1173kbbl draw at Cushing). Gasoline stocks grew +2119kbbl. Utilization fell 1.00% to 86.7%. Production fell -100 to 11,500 kbpd. EIA estimate for US oil demand running at all-time high, above the 2019 pre-pandemic seasonal levels

American Private Businesses in January 2022 Cut Jobs First Time Since December 2020 – TRADERS COMMUNITY

ADP reported that in January private businesses in the United States unexpectedly cut 301K jobs, versus a consensus of a job gain of 207K. The report showed the first job loss since December of 2020 and the biggest since April 2020. Business sentiment has been hurt by the spread of the omicron coronavirus variant, rising interest rates and concerns about the US Administration’s handling of the economy.

The weekly MBA Mortgage Applications Index rose 12.0% following a 7.1% decline in the prior week.

  • Alphabet (GOOG 3057.20, +299.63): +10.9% after beating top and bottom-line estimates and announcing a 20-for-1 stock split.
  • PayPal (PYPL 145.96, -29.84): -17.0% after missing EPS estimates and issuing downside guidance for Q1 and FY22. PYPL was downgraded by several analysts. 
  • Advanced Micro Devices (AMD 31.54, +14.76): +12.6% after beating top and bottom-line estimates and guiding FY22 revenue above consensus. AMD also received Chinese approval for its acquisition of Xilinx (XLNX 222.60, +24.28, +12.2%). 
  • Starbucks (SBUX 96.09, -2.67): -2.7% after missing EPS estimates on above-consensus revenue and lowering its FY22 EPS guidance. 
  • General Motors (GM 55.50, +1.43): +2.6% after beating EPS estimates on below-consensus revenue. GM has no plans to reinstate its dividend at this time. 

Europe

  • Eurozone’s January CPI 0.3% m/m (last 0.4%); 5.1% yr/yr (expected 4.4%; last 5.0%). January Core CPI 1.6% m/m (last 0.4%); 2.3% yr/yr (last 2.6%)
  • France’s December government budget deficit EUR170.70 bln (prior deficit of EUR178.10 bln)
  • Italy’s January CPI 1.6% m/m (last 0.4%); 4.8% yr/yr (expected 3.8%; last 3.9%)
  • Spain’s January Unemployment Change 17,200 (expected -50,700; last -76,800)
  • Eurozone’s inflation increased 5.1% yr/yr in the preliminary reading for January, marking a fresh record high.
  • Bank of England’s shadow board reportedly believes that a 25 bps rate hike should be made at the next meeting.
  • British Prime Minister Johnson may have to face another confidence vote in parliament.

Asia

  • New Zealand’s Q4 Employment Change 0.1% qtr/qtr (expected 0.3%; last 2.0%), Q4 Unemployment Rate 3.2% (expected 3.4%; last 3.3%), and Q4 Participation Rate 71.1% (expected 71.2%; last 71.2%). Q4 Labor Cost Index 0.7% qtr/qtr (expected 0.9%; last 0.7%); 2.8% yr/yr (expected 2.9%; last 2.5%)
  • Reserve Bank of Australia Governor Lowe said that a rate hike in 2022 is “a plausible scenario.”
  • New Zealand’s unemployment rate reached a record low in Q4.
  • Markets in South Korea and Singapore will reopen tomorrow.

Looking ahead:

  • 8:30 ET: Weekly Initial Claims (Briefing.com consensus 245,000; prior 260,000), Continuing Claims (prior 1.675 mln), preliminary Q4 Productivity (Briefing.com consensus 2.7%; prior -5.2%), and preliminary Q4 Unit Labor Costs (prior 9.6%)
  • 9:45 ET: Final January IHS Markit Services PMI (prior 50.9)
  • 10:00 ET: December Factory Orders (Briefing.com consensus -0.2%; prior 1.6%) and January ISM Non-Manufacturing Index (Briefing.com consensus 60.0%; prior 62.0%)
  • 10:30 ET: Weekly natural gas inventories (prior -219 bcf)

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!