Market Wrap – Robust Oil and Gas Prices Coupled with a Measured Powell See Stock Bounce Continue

The market bounce continued to recover as we saw a measured and contrite Fed President Powell before the Senate as more short covering came into effect off the strong technical levels as volatility stalled. Recall a clear buy signal for us is when the bulls of the highflyers are now rabid bears is to be wary as TINA came into effect. Oil rebounded strongly to $81.50 as did Natural gas on freezing weather. The oil and gas prices saw multiple energy stocks hitting 52 highs. Tomorrow we have CPI to feed the inflation mantra.

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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 plot out 2022.

Market Closes

Energy

  • WTI crude futures settled higher by 3.9%, or $3.03, to $81.14/bbl. 
  • API Data for Week Ending 01/07
  • Crude -1.077 million Gasoline +10.86 million Distillates +3.035 million Cushing -3.659 million
  • February Nymex natural gas (NGG22) on Tuesday closed up by +0.170 (+4.17%).
  • Freezing temperatures, Atmospheric G2 on Tuesday said that below-normal temperatures are expected across the eastern U.S. from Jan 16-20, and below-normal temperatures are expected to persist in the eastern U.S. from Jan 16-20.
  • BNEF data showed gas flows to U.S. export terminals Tuesday were up +14.5% y/y at 12.095 bcf, modestly below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The U.S. Dollar Index fell 0.4% to 95.62. 
  • February gold (GCG22) futures settled $19.70 higher (+1.1%) to $1,818.50/oz
  • March silver (SIH22) on Tuesday closed up +0.350 (+1.56%).
  • Bitcoin stronger at 42614 after breaking back above the channel and retesting 39600 low

Stocks

  • The Dow Jones Industrial Average +183.15 at 36252.02 (+0.51%) reversed after four consecutive day. All-time high at 36952.65.
  • S&P index +42.78 at 4713.07 (0.92%) bounced after five straight sessions down. All-time high at 4818.62
  • NASDAQ ++210.62 at 15153.45 (1.41%) gained for second consecutive days. Well above the 200-day moving average (14690). 
  • Russell 2000 217.49▲ 2.17 (1.01%) closes 11% from its all-time high
  • Apple AAPL 175.08▲ 2.89 (1.68%) off yesterday 168.17 low
  • Apple $3 trillion at $182.86
  • NYSE Adv 2392 Dec 849 Vol 852.8 mln
  • Nasdaq Adv 3048 Dec 1404 Vol 4.3 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 ▲ 2.33 (2.75%)
  • ARKG 55.65▲ 1.39 (2.56%)
  • ARKX 18.10▲ 0.33 (1.86%)
  • ARKF 37.53▲ 1.46 (4.05%)
  • ARKW 110.18▲ 3.48 (3.26%)

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

S&P 500 sector watch:

  • 8 of the 11 S&P 500 sectors closed higher
  • Energy sector (+3.42%) Information technology (+1.21%)
  • Utilities (-0.9%), real estate (-0.16%), and consumer staples (-0.87%) sectors closed lower

Markets YTD

  • Dow Jones Industrial Average -0.2% YTD
  • S&P 500 -1.1% YTD
  • Russell 2000 -2.3% YTD
  • Nasdaq Composite -3.1% YTD

Europe

  • German DAX, +1.1%
  • France’s CAC, +0.95%
  • UK’s FTSE 100 +0.62%
  • Spain’s Ibex, +0.56%
  • FTSE MIB +0.66%

Asia

  • Japan’s Nikkei: -0.9%
  • Hong Kong’s Hang Seng: UNCH
  • China’s Shanghai Composite: -0.7%
  • India’s Sensex: +0.4%
  • South Korea’s Kospi: +0.4%
  • Australia’s ASX All Ordinaries: -0.7%.

Bonds

  • 2-yr yield quickly backed down from 0.94% and settled unchanged at 0.90%
  • 3-yr -2 bps to 1.18%
  • 5-yr yield reversed yesterday’s uptick -3 bps to 1.51% after a fresh two-year high (1.558%).
  • 10-yr yield drifted lower by three basis points to 1.75%.
  • 30-yr -4 bps to 2.07%
  • U.S. Treasury auctions all $52 billions of 3-year notes at a high yield of 1.237%
  • Found solid demand ahead of tomorrow’s $36 bln 10-yr note reopening.

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

Powell Confirmation

“This year I expect the Fed will raise rates, end asset purchases and perhaps later this year allow the balance sheet to shrink,” he said.

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.

Around The Barrel – Gasoline and Distillate Builds for Year End Crude Tax Assessment

Welcome to 2022, WTI Oil futures have rallied after OPEC+ holds the status quo. We had Gasoline builds on expected year-end inventory release for tax assessment on December 31 on crude barrels. Last week EIA reported US Crude last Week crude drew -2144Kbbl (incl +2577kbbl build at Cushing). Gasoline stocks drew +10128kbbl. Utilization fell +.1% to 89.7%. Production +200k to 11,800 kbpd.

Looking ahead:

  • Big events for the market include testimony from Fed Chairman Jerome Powell Tuesday and inflation reports on consumer and producer prices.
  • 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!