Market Wrap – Reversal Day, Natural Gas, NASDAQ Taken Out Behind the Woodshed

What goes up to fast, must come down. Natural Gas was a poster boy for KnovaWave past few days up 80 down 50. The market bounce ran into head winds after today’s PPI and Brainard reminded us of the ongoing inflation problem. Oil held on for its part. We saw multiple banks hit 52-week highs ahead of the big earnings kick off with $JPM, $WFC, $C and $BLK Friday before the open. Around the table today was packed with geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow.

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 @mayhem4markets plot out 2022.


Market Closes

Energy

  • WTI crude futures settled on Thursday closed down -0.52 (-0.63%),
  • February RBOB gasoline (RBG22) closed down -0.67 (-0.28%).
  • February Nymex natural gas (NGG22) settled on Thursday down by -0.587 (-12.09%).
  • Freezing temperatures as a major winter storm is expected to sweep the U.S. South this weekend and climb up the East Coast on Monday.  Atmospheric G2 on Thursday said that below-normal temperatures are expected across the northern and eastern parts of the U.S. from Jan 18-22, which should boost heating demand for natural gas
  • BNEF data showed gas flows to U.S. export terminals Thursday were up +8.8% w/w at 12.6 bcf, just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The U.S. Dollar Index on Thursday fell -0.097 (-0.10%) a new 2-month low.
  • February gold (GCG22) futures on Thursday closed down -5.90 (-0.32%)
  • March silver (SIH22) on Thursday closed sown -0.045 (-0.19%). 
  • Bitcoin weaker at 42606 after breaking back above the channel and retesting 39600 low

Stocks

  • The declines in stocks despite lower interest rates suggesting safe haven buying or bond v equity asset allocation.
  • The Dow Jones Industrial Average fell -175.05 points or 0.048% at 36115.26. All-time high at 36952.65.
  • S&P index down -67.10 points or -1.42% at 4659.19. All-time high at 4818.62
  • NASDAQ index is down -281.57 points or -2.51% at 14806.82 fell for the first time in four trading sessions. Still above the 200-day moving average (719.42). 8.67% from the all-time intraday high.
  • Russell 2000 fell is down -16.62 points or -0.76% at 2159.43 closes 13% from its all-time high
  • Apple 172.19▼ 3.34 (1.90%) key recent 168.17 low
  • Apple $3 trillion at $182.86
  • NYSE Adv 1529 Dec 1741 Vol 841.0 mln
  • Nasdaq Adv 1439 Dec 2923 Vol 4.2 bln

Recall Yesterday: 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 today.

Ark of the Covenant not as it appears

ARK ETF

  • ARKK 79.98▼ 4.58 (5.42%)
  • ARKG 51.08▼ 2.34 (4.38%)
  • ARKX 17.52▼ 0.40 (2.23%)
  • ARKF 35.37▼ 1.95 (5.23%)
  • ARKW 102.98▼ 5.89 (5.41%)

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

S&P 500 sector watch:

  • 10 of the 11 S&P 500 sectors closed higher
  • Materials sector (+1.0%) was the only sector that rose at least 1.0%.
  • Health care sector (-0.3%)

Markets YTD

  • Dow Jones Industrial Average -0.1% YTD
  • S&P 500 -0.8% YTD
  • Nasdaq Composite -2.9% YTD
  • Russell 2000 -3.1% YTD

Europe

  • German DAX, unchanged
  • France’s CAC, -0.6%
  • UK’s FTSE 100 +0.2%
  • Spain’s Ibex, +0.4%
  • Italy’s FTSE MIB +0.4%

Asia

  • Hang Seng: +0.1%
  • Shanghai: -1.1%
  • Nikkei: -1.0%

Bonds

  • Treasuries continued their slow rebound as the day went on, the 30-yr yield finishing the day just above its 200-day moving average (2.044%). The long bond settled on its high even though today’s $22 bln 30-yr Treasury bond reopening was met with mediocre demand.
  • 2-yr: UNCH at 0.89%
  • 3-yr: -1 bp to 1.20%
  • 5-yr: -1 bp to 1.48%
  • 10-yr: -1 bp to 1.71%
  • 30-yr: -2 bps to 2.06%

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 being buying any more treasuries after this tranche is complete”.

Why not?

Key Treasury Bond Auctions Along Yield Curve Next Week with Newly Hawkish Fed – TRADERS COMMUNITY

Following the turmoil in the market last week following 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

Around The Barrel – U.S. Crude Oil Stocks Lowest Since Oct 2018 – TRADERS COMMUNITY

WTI Oil futures have rallied after OPEC+ held the status quo and the Macro world unravels with Omicron and Kazakhstan. EIA reported US Crude last Week crude drew -4553Kbbl (incl -2468kbbl draw at Cushing). Gasoline stocks grew +7961kbbl. Utilization fell 1.40% to 88.3%. Production -100k to 11,700 kbpd.

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

Into The Vortex – EIA Reports Draw of -31 Bcf in Natural Gas Storage – TRADERS COMMUNITY

Into New Year and U.S. domestic natural gas demand for heating has weakened   Atmospheric G2 models said that warmer-than-normal temperatures in the eastern U.S. should continue to curb heating demand.  Last week EIA reported a lower-than-expected draw of -31 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.

ISM Non-Manufacturing Index Backs Off Record High in December – TRADERS COMMUNITY

The ISM Non-Manufacturing Index for December pulled back to 62.0% (consensus 67.1%) from a record high 69.1% in November as the Omicron variant runs roughshod over the economy. The Prices Index increased to 82.5% from 82.3% in November. Earlier the ISM Manufacturing Prices Index fell to 68.2% from 82.4%. However, the services is 80% of the US economy, making it an inflation risk.

Looking ahead:

  • Producer Price Index for December, Jobless Claims, EIA Natural Gas Storage and the weekly MBA Mortgage Applications Index on Thursday.
  • The week also marks the beginning of the fourth-quarter earnings season, with big banks JPMorgan Chase, Citigroup and Wells Fargo reporting Friday.

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!