Market Wrap – Meta Continues to Ooze, Peloton Rips and Tears

Stocks showed no fear as 10-yr yields rose past 1.95% ahead of Thursday’s CPI and tomorrow’s 10 year note auction. The Dow rose+332.91 to 35424.04, Nasdaq +113.36 at 14129.02, S&P +29.24 at 4513.11. Oil prices pulled back bringing the energy sector with it We went through Peloton and Lyft after earnings. We followed up on $XOM and $AA. Selling in US treasuries saw yields on the 5 and 10-yr notes to their highest levels since August 2019. The 30-yr yield hit its highest level in eight months.

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

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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. After hours XOM, AA, PTON and LYFT 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, Lumber, Soybeans 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.


Market Closes

Energy

  • March WTI crude oil (CLH22) settled down 2.0%, or $1.84, to $89.43/bbl
  • March RBOB gasoline (RBH22) closed up +3.57 (+1.37%). 
  • March Nymex natural gas (NGH22) on Tuesday closed up by +0.016 (+0.38%).
  • Expectations for colder U.S. temperatures, which will boost heating demand for natgas.  Atmospheric G2 on Tuesday said that colder-than-normal temperatures are expected across the eastern U.S. from Feb 13-17.  Also, below-normal temperatures are expected across the Northeast, Upper Midwest, and parts of Texas from Feb 18-22. 
  • 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 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) Tuesday rose +0.215 (+0.23%).
  • April gold (GCJ22) futures settled $6.10 higher (+0.3%) to $1,827.90/oz
  • March silver (SIH22) closed up +0.124 (+0.54%). 
  • Bitcoin Futures $44,160 -180 (-0.41%) CME

Stocks

For The Day

  • Dow industrial average up 171.63 points or 1.06% at 35462.79. The Dow all-time high close at 36952.65.
  • S&P index rose 37.67 points or 0.84% at 4521.55. The S&P all-time high close at 4818.62.
  • NASDAQ index rose 178.8 points or 1.28% at 14194.46. The Nasdaq all-time high.
  • Russell 2000 rose 32.77 points or 1.63% at 2045.37 The Russell 2000
  • CBOE Volatility Index VIX 21.44▼ 1.42 (6.21%) AT CLOSE‎
  • NYSE Adv 1943 Dec 1313 Vol 890.4 mln
  • Nasdaq Adv 2864 Dec 1701 Vol 4.2 bln

S&P 500 sector watch:

  • 8 of the 11 S&P 500 sectors closed higher
  • Materials sector (+1.6%) and heavily weighted information technology sector (+1.3%) led
  • Energy sector (-2.1%) as oil prices fell below $89 per barrel 

Ark of the Covenant not as it appears

  • ARK ETF
  • ARKK 72.39▼ 0.09 (0.12%)
  • ARKG 48.61▼ 0.40 (0.82%)
  • ARKX 16.65▲ 0.31 (1.90%)
  • ARKF 31.49▲ 0.36 (1.16%)
  • ARKW 93.26▲ 0.89 (0.96%)

Today’s Biggest Winners incl

  • GameStop, +12.97%
  • AMC +10.26%
  • Alcoa, +9.74%
  • Amgen, +7.82%
  • Alibaba, +6.15%
  • American Airlines +5.67%
  • United Airlines, +5.38%
  • Lyft, +5.37%

Dow Movers:

Winners

  • Amgen, +7.82%
  • American Express, +3.21%
  • UnitedHealth +2.0%
  • Dow +1.94%
  • J.P. Morgan +1.88%

Losers

  • Chevron -1.53%
  • Nike -1.07%
  • Merck and Company -0.85%
  • Verizon, -0.32%
  • Procter & Gamble -0.22%

US Markets YTD

  • Dow Jones Industrial Average -2.4% YTD
  • S&P 500 -5.1% YTD
  • Russell 2000 -8.9% YTD
  • Nasdaq Composite -9.3% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: 241.17▲ 1.68 (0.70%)
  • German DAX up 0.3%
  • France CAC 40 up 0.2%
  • Italy MIB up 0.15%
  • Spain IBEX up 1.2%
  • UK FTSE 100 down 0.2%

Asia

Back from Lunar New Year:

  • Japan’s Nikkei: +0.1%
  • Hong Kong’s Hang Seng: -1.0%
  • China’s Shanghai Composite: +0.7%
  • India’s Sensex: +0.3%
  • South Korea’s Kospi: +0.1%
  • Australia’s ASX All Ordinaries: +1.0%

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 finished Tuesday lower note, giving back their modest gains from Monday. Today’s selling lifted the yields on the 5-yr and 10-yr note to their highest levels since August 2019 while the 30-yr yield hit its highest level in eight months. The market saw some early afternoon buying after a Strong U.S. 3-year Treasury Bond Auction with High Yield of 1.592% .

  • 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)

Strong U.S. 3-year Treasury Bond Auction with High Yield of 1.592% – TRADERS COMMUNITY

The US Treasury 3-Year Bond Sale performed much better than expected, garnering an A- rating across the Fixed Interest desk with strong demand from the international market. The tail was -.3 basis points with WI level at time of the auction 1.595% and the high yield of 1.592% at the auction. Solid demand ahead of tomorrow’s $37 billion 10-yr note sale.

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:

  • 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:

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!