The S&P 500 bounced almost 4% after opening down 2.6% after Russia invaded Ukraine but bounced hard to close up 1.5% in a buy the dip trade led by the mega-caps stocks. Bear market rally or something more after initially soaring on BTFD. Oil traded over 100 WTI 105 Brent to pull back hard. We look at the indices, $BYND, $COIN $ETSY, $DELL $AAPL, $AMZN, Gold, Copper, BTC, ETH, Natgas and oil in the podcast. We talk through to today’s action and where to now … This is a high-risk earnings season. …
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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 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 earnings season. We got the Bear Market rally resolution which has angered the BTFD quotient.
We look at the indices, 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.
- April WTI crude oil (CLJ22) futures settled t $92.10, up $0.19.
- April RBOB gasoline (RBJ22) closed up +2.17 (+0.78%).
- March Nymex natural gas (NGH22) Wednesday closed up by +0.125 (+2.78%). Nat-gas prices Wednesday closed moderately higher but remained below Tuesday’s 2-week high.
- Maxar said Wednesday that it expects below-normal temperatures across a wide swath of the U.S. than it previously expected through Feb 27.
- 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 rose +8.5% w/w to 13.1 bcf , just below the Dec 19 record of 13.1 bcf.
Metals and FX
- The dollar index (DXY00) on Wednesday rose +0.156 (+0.16%).
- Gold futures settled $3.00 higher (+0.2%) to $1,910.40/oz, their highest levels since January 2021, sparked by Geopolitical risks.
- March silver (SIH22) closed up +0.242 (+1.00%).
- Bitcoin CME FEB 22 -255 to 37660.0
For The Day
- Dow industrial average down -464.87 points or -1.38% at 33131.77. The Dow all-time high close at 36952.65.
- S&P index down -79.28 points or -1.84% at 4225.49. The S&P all-time high close at 4818.62.
- NASDAQ index -344.02 points or -2.57% at 13037.50. For the week, Nasdaq fell -2.18%.
- Russell 2000 down -36.08 points or -1.82% at 1944.09
- CBOE Volatility Index jumped 15.7% to 28.11.
- NYSE Adv 849 Dec 2406 Vol 923.5 bln
- Nasdaq Adv 1021 Dec 3262 Vol 4.2 bln
S&P 500 sector watch:
- 10 of the 11 S&P 500 sectors closed lower
- S&P 500 consumer discretionary (-3.4%) and information technology (-2.6%) sectors
- Energy sector (+1.0%) was the only sector that closed higher even as oil prices settled lower ($92.12, -0.15, -0.2%).
Within the Dow 30:
- Cisco -3.3%
- Microsoft -2.59%
- Apple -2.59%
- salesforce -2.42%
- Visa -2.4% Home Depot -2.39%
- Caterpillar -2.38%
- J.P. Morgan -2.04%
- Honeywell -1.97%
- Rackspace -12.81%
- AirBNB -9.2%
- Rivian, -7.79%
- Tesla, -7.0%
- Moderna, -6.37%
- Beyond Meat, -6.21%
- Snowflake, -5.65%
- United Airlines -5.33%
- Roblox, -5.19%
- Zoom, -5.14%
US Markets YTD
- Dow Jones Industrial Average -8.8% YTD
- S&P 500 -11.3% YTD
- Russell 2000 -13.4% YTD
- Nasdaq Composite -16.7% YTD
Cboe Daily Market Ratios:
- STOXX Europe 600: -4.2%
- Germany’s DAX: -4.9%
- U.K.’s FTSE 100: -3.0%
- France’s CAC 40: -4.3%
- Italy’s FTSE MIB: -4.9%
- Spain’s IBEX 35: -3.8%
- Japan’s Nikkei: -1.8% Hong Kong’s Hang Seng: -3.2% China’s Shanghai Composite: -1.7% India’s Sensex: -4.7% South Korea’s Kospi: -2.6% Australia’s ASX All Ordinaries: -3.0%.
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
Treasuries 2-yr yield rose five basis points to 1.60%, 10-yr yield rose three basis points to 1.98%. San Francisco Fed President Daly (not a voting FOMC member) said she supported removing accommodation, starting in March.
- 2-yr: +5 bps to 1.60%
- 3-yr: +3 bps to 1.78%
- 5-yr: +3 bps to 1.89%
- 10-yr: +3 bps to 1.98%
- 30-yr: +2 bps to 2.28%
- $53 bln 5-year Treasury note auction results (prior 12-auction average):
- High yield: 1.880% (0.985%).
- Bid-to-cover: 2.49 (2.39).
- Indirect bid: 67.8% (60.5%).
- Direct bid: 18.4% (16.8%).
Reuters Poll taken February 7-15
- 64 of 84 are looking for a 25bp hike
- 20 analysts forecast a 50-basis-point move to 0.50-0.75%
- U.S. 30-year Treasury Bond Auction with High Yield of 2.340% Slapped by CPI and Bullard – TRADERS COMMUNITY
- Strong U.S. 10-year Treasury Bond Auction with High Yield of 1.904% – TRADERS COMMUNITY
- Strong U.S. 3-year Treasury Bond Auction with High Yield of 1.592% – TRADERS COMMUNITY
The probability for a half-point hike in March decreased to 50.2% from 93.8% yesterday, according to the CME FedWatch Tool.
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
- Moderna (MRNA 133.50, -2.23): -1.6% despite beating top and bottom-line estimates and authorizing a new $3 billion share repurchase program.
- eBay (EBAY 49.73, -4.86): -8.9% after issuing downside Q1/FY22 guidance for EPS and revenue. The company also increased its quarterly dividend by 22% and expanded its share repurchase authorization by $4 billion.
- Five9 (FIVN 52.63, -4.90): -8.5% after guiding Q1 EPS below consensus, although the company did guide FY22 revenue above consensus and beat top and bottom-line estimates.
- Wayfair (W 107.00, -14.32): -11.8% after missing EPS estimates.
- South Jersey Industries (SJI 34.69, +11.21): +47.7% after agreeing to be acquired by Infrastructure Investments Fund for $36.00 per share in cash, reflecting an enterprise value of approximately $8.1 billion.
- U.K.’s February CBI Distributive Trades Survey 14 (expected 25; last 28)
- France’s February Consumer Confidence 98 (expected 100; last 99)
- Italy’s December Industrial Sales -2.1% m/m (last 2.4%); 14.3% yr/yr (last 22.2%)
- Swiss Q4 employment level 5.239 mln (last 5.213 mln)
- European Central Bank policymaker Makhlouf said that the ECB may decide when to end its asset purchases at the upcoming meeting, but flexibility has to be maintained in the face of geopolitical uncertainty.
- Bank of England Chief Economist Pill said that inflation remains uncomfortably high and must be brought down “in a measured way.”
- South Korea’s January PPI 0.9% m/m (last 0.0%); 8.7% yr/yr (last 9.0%)
- Australia’s Q4 Private New Capital Expenditure 1.1% qtr/qtr (expected 2.6%; last -2.2%)
- Hong Kong’s January trade deficit HKD36.6 bln (last deficit of HKD32.8 bln). January Imports 9.6% m/m (last 19.3%) and Exports 18.4% m/m (last 24.8%)
- Bank of Japan Governor Kuroda said that the central bank is not looking to modify its easy policy.
- China’s Housing Minister said that the country’s housing demand has transitioned to the improvement phase.
- The Bank of Korea left its repurchase rate at 1.25%, as expected.
Reserve Bank of New Zealand Raised Rate 25 Basis Points as Expected, Will Not Reinvest QE Proceeds – TRADERS COMMUNITY
- 8:30 ET: Q4 GDP — second estimate (Briefing.com consensus 7.0%; prior 6.9%), Q4 GDP Deflator — second estimate (Briefing.com consensus 6.9%; prior 6.9%), weekly Initial Claims (Brefing.com consensus 240,000; prior 248,000), and Continuing Claims (prior 1.593 mln)
- 10:00 ET: January New Home Sales (Brefing.com consensus 805,000; prior 811,000)
- 10:30 ET: Weekly natural gas inventories (prior -190 bcf)
- 11:00 ET: Weekly crude oil inventories (prior +1.12 mln)
- Treasury Auctions: 13:00 ET: $50 bln 7-yr Treasury note auction results
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!