Market Wrap – Jobs Deliver More Volatility to Oil, Natural Gas, Spoos and Peloton

Friday closed the week as it started, with volatility. A day after Meta $FB fell 26.4% after earnings the market got some relief from Amazon.com (AMZN 3152.79, +375.88, +13.5%) and Snap (SNAP 38.75, +14.25, +58.2%) after earnings. There were conflicting reactions from a surprising January jobs report which pumped rising Treasury yields, and higher oil prices again ($92.30/bbl, +2.08, +2.3%). The flipside is that the Omicron didn’t do the damage forecast by ADP. Oil prices soared as war drums continued to beat with Russia over the Ukraine. In the Nattyverse futures March Nymex natural gas on Friday continued to pull back, $1 from the high of Wednesday. After hours Peloton popped 40% on takeover rumors, watch us trade $PTON live during 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 Ukraine and US energy policy and global disorder. Topics included the Fed, geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. We look at natural gas back around 50 cents despite bitterly cold weather. After hours Amazon and SNAP earnings and chart pattern review. 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, $AMZN, Gold, Copper, BTC, ETH, Natgas and oil in the podcast. 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.

BONUS: We get the $PTON news at $26 to$35 move, watch us trade that and the pullback trade during the podcast. Have a great weekend. Make sure you smash that like button and subscribe for more trader’s content. HAGW


Market Closes

Energy

  • March WTI crude oil (CLH22) settled on Friday at $92.31. That is up $2.04 or 2.26%. The high $93.17 and the low $90.07. The high reached the highest level since September 2014. Up from last week’s close at $87.24, WTI gained of $5.07 on the week, a 5.8% gain. 
  • 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 +3.57 (+1.37%). 
  • 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 Friday closed down by -0.316 (-6.46%).
  • Expectations for warmer U.S. temperatures that would curb heating demand for nat-gas undercut prices Friday.  Atmospheric G3 expects above-average temperatures across the Northeast, the Great Plains, and the West Coast from Feb 9-13.  
  • Natty fell further on reports of limited damage to gas wellheads and related infrastructure in Texas from cold weather.
  • 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 Thursday were up Friday were up +5.7% w/w at 13 bcf, just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The dollar index Mar ’22 (DXH22) 95.480s closed +0.101 (+0.11%)
  • Follows a rebound after yesterday relative strength in the euro from ECB rate-hike expectations which rallied to a 2-week high as German bund yields jumped on hawkish comments from ECB President Lagarde.  Strength in GBP/USD as the pound climbed to a 2-week high against the dollar after the BOE raised interest rates Thursday.
  • April gold (GCJ22) futures settled $3.70 higher (+0.2%) to $1,807.80/oz, up about +1.2% on the week, despite a modestly higher dollar and treasury yields.
  • March silver (SIH22) closed up at 22.475s +0.100 (+0.45%) 
  • Bitcoin closed higher 40,640s +4,375 (+12.06%) 02/04/22 at CME

Stocks

For The Day

  • Dow industrial average fell -21.42 points or -0.06% at 35089.75. Dow industrial average rose 1.05% for the week. The Dow all-time high close at 36952.65.
  • S&P index rose 23.11 points or 0.52% at 4500.54. S&P index rose 1.51% for the week. The S&P all-time high close at 4818.62.
  • NASDAQ index rose 219.2 points or 1.58% at 14098.02. NASDAQ index rose 2.38% for the week. The Nasdaq all-time high.
  • Russell 2000 fell -11.32 points or 0.57% at 2002.35. Russell 2000 rose 1.43% for the week. The Russell 2000
  • Russell 3000 Growth Index fell 3.7% v 1.1% decline in the Russell 3000 Value Index. 
  • CBOE Volatility Index VIX 24.83AT CLOSE‎ -2.83 (‎-10.23%)
  • NYSE Adv 586 Dec 2658 Vol 905.0 mln
  • Nasdaq Adv 946 Dec 3305 Vol 4.2 bln

S&P 500 sector watch:

  • 10 of the 11 S&P 500 sectors closed lower
  • The S&P 500 communication services (-6.8%), consumer discretionary (-3.6%), and information technology (-3.1%) sectors fell amid weakness in the mega-cap stocks.
  • The consumer staples sector (+0.01%) closed fractionally higher due to its defensive qualities. 

Ark of the Covenant not as it appears

  • ARK ETF
  • ARKK 72.75▲ 3.71 (5.37%) Prior: 69.04▼ 4.10 (5.61%) 73.14▼ 3.94 (5.11%) 75.32▲ 6.41 (9.30%)
  • ARKG 48.36▲ 0.91 (1.92%) Prior: 47.47▼ 1.62 (3.30%) Prior 49.16▼ 1.60 (3.15%) 49.70▲ 3.76 (8.18%)
  • ARK X 16.23▲ 0.34 (2.17%) Prior:15.88▼ 0.47 (2.87%) Prior 16.35▼ 0.18 (1.09%) 16.40▲ 0.58 (3.67%)
  • ARK F 31.29▲ 1.75 (5.92%) Prior: 29.53▼ 1.82 (5.81%) Prior 31.35▼ 2.09 (6.25%) 32.56▲ 2.59 (8.64%)
  • ARK W 92.11▲ 5.61 (6.49%) Prior:86.50▼ 5.63 (6.11%) Prior 92.13▼ 4.84 (4.99%) 94.71▲ 7.44 (8.53%)

This Week’s Biggest Losers included:

Weekly Biggest Losers incl

  • PayPal $PYPL -22.9%
  • Meta $FB -21.42%
  • Transcat $TRNS -19.48%
  • Ford Motor $F -8.09%
  • Gilead $GILD -7.2%
  • Blackberry $BB-6.35%
  • Honeywell $HON -5.19%
  • Doordash $DASH -5.0%
  • AT&T $T-4.48%
  • Rocket $RCKT-3.72%
  • Walgreens -3.69%
  • First Solar, -3.3%

This Week’s Biggest Losers included:

  • Snap, +27.38%
  • GoodRx, +20.25%
  • Robinhood, +19.25%
  • AMD, 17.45%
  • Nio, +14.69%
  • Chewy, +12.24%
  • Alcoa, +11.85%
  • Nucor, +11.46%
  • Roblox +9.54%
  • Amazon +9.49%
  • Boeing +8.35%

US Markets YTD

  • Dow Jones Industrial Average -3.4% YTD
  • S&P 500 -5.6% YTD
  • Nasdaq Composite -9.9% YTD
  • Russell 2000 -10.8% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: 462.15 -6.48-1.38% For the week -0.73%
  • German DAX, -1.75% For the week -1.43%
  • France’s CAC, -0.8% For the week -0.21%
  • UK’s FTSE 100 -0.2% For the week +0.6%
  • Spain’s Ibex, -1.15% For the week -0.25%
  • Italy’s FTSE MIB, -1.8% For the week near unchanged

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. 

Weekly and YTD returns

  • Japan’s Nikkei Equities Index rallied 2.7% (down 4.7% y-t-d).
  • South Korea’s Kospi index recovered 3.3% (down 7.6%).
  • India’s Sensex equities index jumped 2.5% (up 0.7%).
  • China’s Shanghai Exchange was closed for holiday (down 7.6%).
  • Australia’s ASX All Ordinaries Friday had a 0.6% gain, up 42.1 to close at 7,120, its biggest weekly gain since December. For the week, the market rose 1.89%.

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 ended the week lower with all tenors under January lows. The much better than expected Employment report saw selling pressure across the curve. The 10-yr note and 30-yr bond closed near their worst levels at close while shorter tenors added to their losses to end on lows. After yesterday’s BoE and ECB moves the 10-year UK gilt yield climbing to a 3-year high and the 10-year German bund yield posting a 2-3/4 year high.

  • 2-yr: +13 bps to 1.32% (+15 bps for the week)
  • 3-yr: +14 bps to 1.55% (+17 bps for the week)
  • 5-yr: +13 bps to 1.79% (+17 bps for the week)
  • 10-yr: +10 bps to 1.93% (+15 bps for the week)
  • 30-yr: +9 bps to 2.23% (+15 bps for the week)

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%.

Key Earnings Reviews

News Highlights

USA

Europe

  • Several top aides of British Prime Minister Johnson resigned after his chief of staff quit yesterday.
  • The European Central Bank’s survey of professional forecasters showed an increase in the harmonized inflation forecast for 2022 to 3.0% from 1.9% while the outlook for 2023 was revised up to 1.8% from 1.7%.
  • Intesa Sanpaolo announced plans to grow its profit by EUR2.3 bln by 2025 and return EUR22 bln to investors.
  • Eurozone’s December Retail Sales fell 3.0% m/m (expected -0.5%; last 1.0%) but were up 2.0% yr/yr (expected 5.1%; last 8.2%).
  • Germany’s December Factory Orders rose 2.8% m/m (expected 0.5%; last 3.6%) and January Construction PMI rose to 54.4 from 48.2.
  • France’s December Industrial Production decreased 0.2% m/m (expected 0.5%; last -0.5%) and Q4 nonfarm payrolls rose 0.5% qtr/qtr (last 0.4%).

Asia

  • Japan’s Finance Minister Suzuki said that the country’s fiscal situation is worsening but a review of future tax rates is not being considered at this time.
  • South Korea’s January CPI was up 0.6% m/m (expected 0.4%; last 0.2%) and up 3.6% yr/yr (expected 3.3%; last 3.7%).
  • Singapore’s December Retail Sales rose 2.3% m/m (last 2.8%), increasing 6.7% yr/yr (last 2.2%).
  • New Zealand’s December Building Consents rose 0.6% m/m (last 0.6%).

Looking ahead:

  • Monday: December Consumer Credit (prior $39.90 bln) at 15:00 ET
  • Tuesday: December Trade Balance (prior -$80.20 bln) at 8:30 ET and $50 bln 3-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior 12.0%) at 7:00 ET; December Wholesale Inventories (prior 1.4%) at 10:00 ET; weekly crude oil inventories (prior -1.05 mln) at 10:30 ET; and $37 bln 10-yr Treasury note auction results at 13:00 ET
  • Thursday: Weekly Initial Claims (prior 238,000), Continuing Claims (prior 1.628 mln), January CPI (prior 0.5%), and Core CPI (prior 0.6%) at 8:30 ET; weekly natural gas inventories (prior -268 bcf) at 10:30 ET; $23 bln 30-yr Treasury bond auction results at 13:00 ET; and January Treasury Budget (prior -$21.30 bln) at 14:00 ET
  • Friday: Preliminary University of Michigan Consumer Sentiment survey (prior 67.2) at 10:00 ET

Earnings we are watching next week:

Monday:

  • Alibaba

Tuesday:

  • Chipotle
  • NCR Corp
  • Pfizer

Wednesday:

  • CVS
  • Disney
  • Twilio
  • MGM Resorts
  • Uber

Thursday

  • Coca Cola
  • Zillow
  • Twitter
  • Phillip Morris
  • PepsiCo

Friday

  • Under Armour

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!