Market Wrap – Tesla Keeps Bears Roaring, Bulls Hopes with Apple Jan 27, 2022

Stock markets gave a repeat of yesterday another Bear Market rally after initially soaring on BTFD. Selling took hold with Tesla crashing. Oil was back around 7-year highs, but natural gas was the story as into settlement. Natural gas squeezed for the largest one-day percentage move on record U.S. Treasuries finished Thursday mixed note, the 2s10s spread tightened by 15 bps to 62 bps and it is now 14 bps tighter for the week. Oil was back around 7-year highs. Volatility continued after hours with Apple and TEAM earnings. The specter of energy woes and Ukraine overhang. We look at the indices, $AAPL, Gold, Copper, BTC, ETH, Natgas and oil in the podcast. Oil moved around with geopolitical risks in the Ukraine.  

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) on Thursday closed down -1.00 (-1.14%)
  • 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 -0.22 (-0.09%).
  • February Nymex natural gas (NGG22) on Thursday closed up by +1.988 (+46.48%).
  • Natgas prices Thursday soared to a 13-year nearest-futures high and closed sharply higher.  Nat-gas prices Thursday morning opened moderately higher on forecasts for colder U.S. temperatures that will boost heating demand for natgas.  Atmospheric G2 said Thursday that colder than normal temperatures are expected in the central and western U.S. from Feb 1-5, and below-normal temperatures are expected across the eastern and southern U.S. from Feb 6-10.  
  • Geopolitical concerns in Ukraine are underpinning European gas prices and sparked short-covering in U.S. natgas prices.  Goldman Sachs warned 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 Thursday were up +32% y/y at 12.99 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 dollar index (DXY00) on Thursday rose +0.733 (+0.76%) to a 1-1/2 year high on carry-over support from Wednesday when Fed Chair Powell said he favors a Fed rate hike in March.  
  • February gold (GCG22) on Thursday closed down -36.60 (-2.00%),
  • March silver (SIH22) closed down -1.131 (-4.75%). 
  • Bitcoin down at 36,480 after breaking through 39600 low

Stocks

  • Dow industrial average The Dow was up 605 points. It is closing down -7.32 points or -0.02% at 34160.79. It fell 1600 points or -4.57% last week. The Dow is 7.17% from its all-time high close at 36952.65.
  • S&P index reached a high at up 79.46 points. It is closing down -23.42 points or -0.54% at 4326.50. The S&P fell -5.68% last week. The S&P is down -9.8% from its all-time high close at 4818.62.
  • NASDAQ index reached a high at up 223.80 points. It is closing down -189.3 points or -1.40% at 13352.79. Last week the NASDAQ fell -7.53% The Nasdaq is -16.79% from its all-time high close seen in November.
  • Russell 2000 fell -Russell 2000 which fell -2.25% today is now 20.91% from its all-time high. The Russell 2000 closed at a 52-week low. 38.2% of the move up from the March 2020 low at 1889.67.
  • Tesla (TSLA 829.10, -108.31, -11.6%), which delayed new vehicle launches amid persistent supply chain issues. 
  • Philadelphia Semiconductor Index (-4.8%) after Intel (INTC 48.05, -3.64, -7.0%), Lam Research (LRCX 555.30, -41.37, -6.9%), and Teradyne (TER 111.24, -32.13, -22.4%) each provided disappointing quarterly guidance. 
  • McDonald’s (MCD 248.74, -1.11, -0.4%), Dow Inc. (DOW 60.18, +2.96, +5.2%), MasterCard (MA 350.53, +5.87, +1.7%), and Comcast (CMCSA 48.01, -0.45, -0.9%) reported earnings. 
  • Apple (AAPL 159.22, -0.47, -0.3%) closed lower in front of its earnings report after the close. 
  • CBOE Volatility 31.96+0.80 (+2.57%) At close: 04:15PM EST
  • NYSE Adv 904 Dec 2381 Vol 1.1 bln
  • Nasdaq Adv 921 Dec 3551 Vol 5.1 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

ARK ETF

  • 66.33▼ 2.70 (3.91%)
  • 43.95▼ 1.69 (3.70%)
  • 15.59▼ 0.40 (2.50%)
  • 28.74▼ 1.04 (3.49%)
  • 83.98▼ 3.30 (3.78%)

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

S&P 500 sector watch:

  • 6 of the 11 S&P 500 sectors closed lower
  • Energy (+1.2%), utilities (+0.8%), and consumer staples (+0.6%).
  • Consumer discretionary (-2.3%), information technology (-0.7%), and financials (-0.9%) sectors lagged

Markets YTD

  • Dow Jones Industrial Average -6.0% YTD
  • S&P 500 -9.2% YTD
  • Russell 2000 -14.0% YTD
  • Nasdaq Composite -14.7% YTD

Europe

  • German Dax +0.15%
  • France’s CAC +0.35%
  • UK FTSE 100 +1.0%
  • Spain’s Ibex +0.7%
  • Italy’s FTSE MIB +0.8%

Asia

(Wed)

  • ASX All Ordinaries Index closed for Australia Day
  • Hang Seng Index HSI 24,289.90 +46.29 +0.19%
  • Nikkei Stock Average 225 27,011.33 -120.01 -0.44%
  • Shanghai Composite Index 3,455.67 +22.61 +0.66%
  • South Korea, Kospi declined 0.41% to close at 2,709.24.
  • Singapore’s Straits Times index jumped 0.91%.
  • India closed for holidays

Bonds

U.S. Treasuries finished Thursday on a mixed note, the 2s10s spread tightened by 15 bps to 62 bps and it is now 14 bps tighter for the week.  The 10-yr note and the 30-yr bond finished with solid gains while shorter tenors underperformed with the 2-yr note ending near its low.

  • 2-yr: +11 bps to 1.19%
  • 3-yr: +5 bps to 1.42%
  • 5-yr: +1 bp to 1.66%
  • 10-yr: -4 bps to 1.81%
  • 30-yr: -8 bps to 2.09%

$53 bln 7-yr note auction was met with solid demand, capping this week’s strong slate of note auctions despite the market’s focus on the Fed’s rate hike plans. 

  • $53 bln 7-year Treasury note auction results (prior 12-auction average):High yield: 1.769% (1.264%).
  • Bid-to-cover: 2.36 (2.28).
  • Indirect bid: 62.6% (58.2%).
  • Direct bid: 22.9% (20.0%).

$55 bln 5-yr note auction was met with strong demand Tuesday to follow an equally strong 2-yr note auction on Monday.

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”.

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

The Advance Q4 GDP report showed real GDP increasing at an annual rate of 6.9% (Briefing.com consensus 5.6%) following a 2.3% increase in the third quarter. The GDP Chain Deflator was also up 6.9% (consensus 5.9%) after a 6.0% increase in the third quarter. Services spending drove the 3.3% increase in personal spending and that inventory investment was the biggest contributor to the increase in real GDP. Real final sales of domestic product, which exclude the change in inventories, were up 1.9%.

Initial jobless claims for the week ending January 22 decreased by 30,000 to 260,000 (consensus 260,000). Continuing claims for the week ending January 15 increased by 51,000 to 1.675 million.

December Durable Goods Orders decreased 0.9% month-over-month (consensus -0.5%) while orders, excluding transportation, increased 0.4% (consensus 0.4%).The key takeaway from the report is the slowdown in business spending, evidenced by an unchanged reading for nondefense capital goods orders excluding aircraft that followed on the heels of a 0.3% increase in November.

Natural Gas Squeezes in Largest One Day Percentage Move on Record as Traders Caught Short Molecules – TRADERS COMMUNITY

Into settlement Natural gas squeezed for the largest one-day percentage move on record and highest finish since October. February delivery settled at $6.265 per million British thermal units, up $1.99, or 46.5% on NYMEX. Earlier in the day the EIA reported a higher-than-expected draw of -219 Bcf of working gas in storage. U.S. domestic natural gas demand continues strained with volatile weather.  Natural gas futures soared yesterday after the Atmospheric G2 model showed the largest reversal this winter, meaning projected heated demand is much higher for the next two weeks. There is a massive snowstorm heading toward the East Coast.

Into The Vortex – EIA Reports a Draw of -219 Bcf in Natural Gas Storage – TRADERS COMMUNITY

U.S. domestic natural gas demand is being strained with volatile weather.  Freezing temperatures in the Central U.S. and below-normal temperatures on the East Coast has boosted demand to highest since 2019.  Last week EIA reported a higher-than-expected draw of -219 Bcf of working gas in storage lower than expected. With the global energy crisis LNG exports continue to grow but we balance supply shortages with deliverability.

IMF Cuts 2022 Global Growth With US, China and EU all Downgraded – TRADERS COMMUNITY

The International Monetary Fund on Tuesday downgraded its 2022 global growth forecast to 4.4% in its World Economic Outlook report. The IMF said it expects global gross domestic product to grow 0.5% less than previously estimated. The revision is largely due to lower growth in the world’s two largest economies: the U.S. and China. Rising Covid-19 cases, supply chain disruptions and higher inflation have hampered the economic recovery.

Europe

  • Italy’s economy minister said that the country’s economy is expected to grow 6.5% in 2021.
  • Deutsche Bank reported an unexpected profit for Q4.
  • The European Central Bank reportedly warned lenders with exposure to Russia to prepare for possible sanctions against the country.
  • Germany’s February GfK Consumer Climate ticked up to -6.7 from -6.9 (expected -7.8).
  • U.K.’s January CBI Distributive Trades Survey rose to 28 from 8 (expected 13).
  • Italy’s November Industrial Sales rose 2.4% m/m (last 2.9%), increasing 22.2% yr/yr (last 17.0%).
  • Spain’s Q4 Unemployment Rate fell to 13.33% from 14.57% (expected 14.20%).
  • Swiss December trade surplus reached CHF3.693 bln (expected surplus of CHF5.23 bln; last surplus of CHF6.099 bln).

Asia

  • South Korea’s vice finance minister said that bond sales to fund this year’s extra budget of KRW14 trln will be divided “with balance.”
  • North Korea conducted another missile test.
  • China’s December Industrial Profit was up 34.3% YTD (last 38.0%).
  • South Korea’s February Manufacturing BSI Index rose to 93 from 89.
  • New Zealand’s Q4 CPI was up 1.4% qtr/qtr (expected 1.3%; last 2.2%) and up 5.9% yr/yr (expected 5.7%; last 4.9%), expanding at its fastest yr/yr pace in over 30 years.

US December CPI +7.0% y/y largest Increase in Consumer Inflation since June 1982 – TRADERS COMMUNITY

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 Added Lowest New Jobs In 12 Months in December with Just 199,000 But Wages Higher – TRADERS COMMUNITY

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

Looking ahead:

Advance estimate for Q4 GDP, the weekly Initial and Continuing Claims report, Durable Goods Orders for December, and Pending Home Sales for December on Thursday. 

Earnings we are watching before tomorrow’s open:

Finally on Friday:

  • Chevron
  • Caterpillar
  • Phillips 66
  • Colgate-Palmolive

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!