Market Wrap – ROKU and Stocks Wrecked Again Feb 17 2022

Stock markets continued to sell off, S&P 500 dropped 2.1% as risk sentiment remained pressured by negative war drums Russia-Ukraine headlines. The Nasdaq Composite -2.9% and Russell 2000 -2.5%

After hours ROKU and DBX collapsed after earnings. This is a high-risk earnings season. Another Bear Market rally. We look at the indices, $AAPL, $AMZN, Gold, Copper, BTC, ETH, Natgas and oil in the podcast. We talk through to today’s action and where to now …

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 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.


Market Closes

Energy

  • March WTI crude oil (CLH22) futures settled lower by 2.2%, or $2.07, to $91.76/bbl. 
  • Around The Barrel – Crude Oil Draws 4766kbbls as Refinery Utilization Rises 1.5%
  • March RBOB gasoline (RBH22) closed down -11.03 (-3.97%).
  • March Nymex natural gas (NGH22) on Thursday closed down by -0.231 (-4.90%).
  • Atmospheric G2 said today that an arctic cold blast could drop into Texas and the Midwest Feb 22-26, and below-normal temperatures are expected across the eastern two-thirds of the U.S. from Feb 27-Mar 3.
  • Into The Vortex – EIA Reports Natural Gas Storage Fell -222 Bcf 
  • 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 Mar ’22 (DXH22) on Tuesday fell -0.398 (-0.41%).. 
  • Gold futures settled $30.50 higher (+1.6%) to $1,902.00/oz, its highest finish since June 2021, sparked by Geopolitical risks.
  • Silver settled up +0.270 (+1.14%)  
  • Bitcoin CME FEB 22 $40900.0 -3275

Stocks

For The Day

  • Dow industrial average fell -623 points or -1.78% at 34311. The Dow all-time high close at 36952.65.
  • S&P index -94.99 points or -2.12% at 4380.03. The S&P all-time high close at 4818.62.
  • NASDAQ index -407.37 points or -2.88% at 13716.72. For the week, Nasdaq fell -2.18%.
  • Russell 2000 -51.21 points or -2.46% at 2028.09
  • 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:

  • 9 of the 11 S&P 500 sectors closed lower
  • The information technology (-3.1%), communication services (-3.0%), and consumer discretionary (-2.6%) sectors. 
  • The consumer staples (+0.9%) and utilities (+0.1%) 

US Markets YTD

  • Dow Jones Industrial Average -5.6% YTD
  • S&P 500 -8.1% YTD
  • Russell 2000 -9.7% YTD
  • Nasdaq Composite -12.3% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: 242.76▲ 2.58 (1.07%)
  • Germany’s DAX: +1.76%
  • U.K.’s FTSE 100: +0.77%
  • France’s CAC 40: +1.64%
  • Italy’s FTSE MIB: +1.86%
  • Spain’s IBEX 35: +1.74%

Asia

  • Japan’s Nikkei: -0.8%
  • Hong Kong’s Hang Seng: -0.8%
  • China’s Shanghai Composite: +0.5%
  • India’s Sensex: +3.1%
  • South Korea’s Kospi: -1.0%
  • Australia’s ASX All Ordinaries: -0.6%

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

Treasuries increased demand pushed the 10-yr yield down eight basis points to 1.97% and the 2-yr yield down five basis points to 1.47%.

  • 2-yr: -5 bps to 1.47%
  • 3-yr: -3 bps to 1.69%
  • 5-yr: -7 bps to 1.85%
  • 10-yr: -8 bps to 1.97%
  • 30-yr: -5 bps to 2.31%

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%

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

News Highlights

USA

  • Into The Vortex – EIA Reports Natural Gas Draw of -190Bcf in Storage – TRADERS COMMUNITY
  • US Producer Price Inflation Soars in January Double Expectations PPI +1.0% m/m +9.7% y/y – TRADERS COMMUNITY
  • Intel Corp is nearing a deal to buy Israeli chip firm Tower Semiconductor TSEM for almost $6 billion, the Wall Street Journal reported on Monday. A deal could be unveiled as soon as this week assuming the talks do not fall apart, the report said, citing people familiar with the matter. Intel and Tower Semiconductor did not immediately respond to Reuters requests for comment. U.S.-listed shares of Tower Semiconductor, which specializes in making analog integrated circuits, soared nearly 53% in extended trading while Intel was down 0.8%.
  • Tower Semi (TSEM 47.73, +14.60): +44.1% after agreeing to be acquired by Intel (INTC 48.21, +0.63, +1.3%) for $53.00 per share in cash, representing an enterprise value of $5.4 billion. 
  • Marriott (MAR 176.64, +5.31): +3.1% after beating top and bottom-line estimates.
  • Arista Networks (ANET 135.00, +12.18): +9.9% after beating top and bottom-line estimates and guiding Q1 revenue above consensus.
  • Zoetis (ZTS 200.40, +3.97): +2.0% after beating top and bottom-line estimates, although the company did guide FY22 EPS below consensus.
  • Advance Auto (AAP 222.00, -2.28): -1.0% despite beating top and bottom-line estimates, guiding FY22 EPS and revenue above consensus, and authorizing a $1.0 bln share repurchase program.

Europe

  • Eurozone’s Q4 GDP 0.3% qtr/qtr, as expected (last 0.3%); 4.6% yr/yr, as expected (last 4.6%). Q4 Employment Change 0.5% qtr/qtr (last 0.9%); 2.1% yr/yr (last 2.1%). December trade deficit EUR4.60 bln (last deficit of EUR1.40 bln). February ZEW Economic Sentiment 48.6 (last 49.4)
  • Germany’s February ZEW Economic Sentiment 54.3 (expected 55.0; last 51.7) and ZEW Current Conditions -8.1 (expected -6.0; last -10.2)
  • U.K.’s December average earnings index + bonus 4.3% yr/yr (expected 3.8%; last 4.2%). December three-month employment change -38,000 (expected -65,000; last 60,000) and December Unemployment Rate 4.1%, as expected (last 4.1%)
  • Spain’s January CPI -0.4% m/m (expected -0.5%; last 1.2%); 6.1% yr/yr (expected 6.0%; last 6.5%)

Asia

  • China’s January FDI 11.6% yr/yr (last 14.9%)
  • Japan’s Q4 GDP 1.3% qtr/qtr (expected 1.4%; last -0.9%); 5.4% yr/yr (expected 5.8%; last -3.6%). Q4 GDP Capital Expenditure 0.4% qtr/qtr (expected 0.5%; last -2.3%) and Q4 GDP Private Consumption 2.7% qtr/qtr (expected 2.2%; last -1.3%). December Industrial Production -1.0% m/m (last -1.0%) and Capacity Utilization -0.4% m/m (last 8.0%)
  • South Korea’s January trade deficit $4.83 bln (last deficit of $4.89 bln). January Imports 35.3% yr/yr (last 35.5%) and Exports 15.2% yr/yr (last 15.2%)
  • India’s January trade deficit $17.42 bln (expected deficit of $17.90 bln; last deficit of $17.94 bln)
  • There was continued speculation that the People’s Bank of China will lower the reserve requirement ratio later in the year.
  • Japan’s real GDP grew for the first time in three years in 2021.
  • Bank of Japan Governor Kuroda said that the global economy is facing big challenges and that continuation of loose monetary policy in Japan is warranted.
  • Commonwealth Bank of Australia expects that the Reserve Bank of Australia will make its initial rate hike in June.

Looking ahead:

  • Monday:  Chatter on Ukraine and Russia, Fed bets with Bullard
  • Tuesday: January PPI (prior 0.2%), Core PPI (prior 0.5%), and February Empire State Manufacturing survey (prior -0.7) at 8:30 ET and December net Long-Term TIC Flows (prior $137.40 bln) at 16:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -8.1%) at 7:00 ET; January Retail Sales (prior -1.9%), Retail Sales ex-auto (prior -2.3%), and January Import/Export prices at 8:30 ET; January Industrial Production (prior -0.1%) and Capacity Utilization (prior 76.5%) at 9:15 ET; February NAHB Housing Market Index (prior 83) and December Business Inventories (prior 1.3%) at 10:00 ET; weekly crude oil inventories (prior -4.76 mln) at 10:30 ET; and $19 bln 20-yr Treasury bond auction results at 13:00 ET
  • Thursday: January Housing Starts (prior 1.702 mln), Building Permits (prior 1.873 mln), weekly Initial Claims (prior 223,000), Continuing Claims (prior 1.621 mln), and February Philadelphia Fed survey (prior 23.2) at 8:30 ET; and weekly natural gas inventories (prior -222 bcf) at 10:30 ET
  • Friday: January Existing Home Sales (prior 6.18 mln) and January Leading Indicators (prior 0.8%) at 10:00 ETCOT Reports

Fed Week Ahead

Monday: Bullard

Tuesday: Nothing so far

Wednesday: FOMC minutes

Thursday: Bullard again Mester

Friday: Evans Waller Brainard (but topic is central bank digital currencies)

Earnings we are watching next week:

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!