Market Wrap – Snap Goes the Market May 24, 2022

Another day another bear market rally wrecked, this time by DDD member $SNAP who fell 42% after warning. The Nasdaq Composite was down as much as 3.8% and finished of 2.4%. The S&P 500 was down 2.5% and closed 0.8%. Again, the bottom pickers were out. Small-cap specialty apparel retailer Abercrombie & Fitch was also wrecked (ANF 19.03, -7.70, -28.8%) reporting disappointing fiscal Q1 results and issued disappointing guidance, citing higher costs and lower sales due to an assumed inflationary impact on the consumer.

The 10-yr note yield settled the day down 10 basis points at 2.76% and the 2-yr note yield settled the day down 11 basis points at 2.50%. We look at the indices, $AAPL $TSLA $ANF $SNAP $JWN Gold, Copper, BTC, ETH, Natgas and oil in the podcast. We talk through to today’s action and where to now …

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

Live on YouTube

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.

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 market.


Market Closes

Energy

  • Crude Oil Futures settled July at $109.77 That’s down -$0.52 or -0.47% ahead of API
  • The low $108.61 The high price $111.43.
  • WTI off the high price of $129.44. The highest in 2008 was $147.27.
  • Brent Crude Futures 113.95 0.39 0.34
  • Natural Gas Futures 8.875 0.048 0.54
  • Unleaded Gasoline Futures 3.6873 0.0071 0.19
  • Rystad Energy said the war-induced uncertainty is likely to continue to impact gas prices. “The gas market remains highly volatile, and news driven,” said Rystad analyst Fabian Rønningen. This week, in particular, “the market remains anxious for clarity on rules governing ruble payments for Russian gas supplies.”

Commodities and FX

  • The U.S. Dollar Index slipped 0.2% to 101.85.
  • Gold futures settled $17.60 higher (+1.0%) to $1,865.40/oz, ending higher for a fourth consecutive session.
  • Silver Futures 22.115 0.392 1.80
  • Copper Futures 4.3125 -0.0330 -0.76
  • Corn Futures 770.00 -16.25 -2.07
  • Wheat Futures 1154.50 -35.50 -2.98
  • Bloomberg Commodity Index 131.93 -0.42 -0.32
  • Bitcoin USD 29463 35 0.12
  • Ethereum USD 1971.89 4.68 0.24
  • Ripple USD 0.4065 0.0003 0.08

Stocks

US Indices & S&P 500 sector watch:

  • Dow 31928.64 +48.38 (0.15%)
  • Nasdaq 11264.44 -270.83 (-2.35%)
  • SP 500 3941.49 -32.27 (-0.81%)
  • Russell 2000 1764.83 -27.94 -1.56
  • NYSE Composite 15290.38 -52.58 -0.34
  • CBOE Volatility 29.45 0.97 3.41
  • NYSE Adv 1382 Dec 1920 Vol 1.0 bln
  • Nasdaq Adv 1346 Dec 3336 Vol 4.7 bln
  • Seven of the 11 S&P 500 sectors closed lower, particularly hit the communication services (-3.7%), consumer discretionary (-2.6%), and information technology (-1.6%) sectors.
  • Counter-cyclical utilities (+2.0%), consumer staples (+1.6%), and health care (+0.3%) sectors. Real estate (+1.2%) also outperformed. Materials (+0.7%), consumer discretionary (+0.1%), and health care (+0.2%) sectors eked out gains.

Key After Hours


  • Agilent (A) beats by $0.01, reports revs in-line; guides Q3 EPS in-line, revs below consensus; guides FY22 EPS above consensus, reaffirms FY22 revs guidance… A up 3.4%
  • Caleres (CAL) beats by $0.49, beats on revs; guides FY23 EPS above consensus, revs in-line… CAL up 8.3%
  • Intuit (INTU) beats by $0.07, beats on revs; guides JulQ EPS in-line, revs above consensus… no indication for INTU
  • Johnson & Johnson’s (JNJ) Janssen presents study results showing clinical efficacy for TREMFYA… JNJ down 0.4%
  • LiveRamp (RAMP) misses by $0.03, beats on revs; guides Q1 revs below consensus; guides FY23 revs below consensus; intends to repurchase approximately $150 mln of common stock by end of 3Q23… RAMP up 0.8%
  • Nordstrom (JWN) misses by $0.02, beats on revs; guides FY23 EPS above consensus, revs above consensus; authorizes a new $500 mln share repurchase program… JWN up 7.0%
  • Toll Brothers (TOL) beats by $0.23, beats on revs; expects JulQ deliveries of 2,750 units; expects FY22 deliveries of 11,000-11,500 units; authorized approximately $900 mln for share buybacks… TOL up 5.5%
  • Urban Outfitters (URBN) misses by $0.09, misses on revs, +11% retail segment comp… URBN up 2.1%

US Markets YTD

  • Dow Jones Industrial Average -12.1% YTD
  • S&P 500 -17.3% YTD
  • S&P 400 -16.2% YTD
  • Russell 2000 -21.4% YTD
  • Nasdaq Composite -28.0% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

Index – Last – Chg – % Chg

European stock indexes closed off the lows of the day after relentless selling subsided.

  • German DAX, -1.74%
  • France’s CAC, -1.66%
  • UK’s FTSE 100, -0.38%
  • Spain’s Ibex, unchanged
  • Italy’s FTSE MIB, -1.06%

Asia

  • Japan’s Nikkei -0.9%;
  • Hong Kong’s Hang Seng -1.8%;
  • China’s Shanghai Composite -2.4%;
  • India’s Sensex -0.4%;
  • South Korea’s KOSPI -1.6%;
  • Australia’s ASX-0.4%.

Recall in January: 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

Bonds

U.S. Treasuries ended Tuesday on a firmly higher note, reclaiming their losses from Monday’s retreat. Today’s advance pressured the 10-yr yield to a four-week low with its 50-day moving average (2.700%) looming just below. The Treasury complex finished the day not far from session highs, showing little reaction to today’s strong $47 bln 2-yr note sale.

  • 2-yr: -11 bps to 2.50%
  • 3-yr: -12 bps to 2.68%
  • 5-yr: -12 bps to 2.76%
  • 10-yr: -10 bps to 2.76%
  • 30-yr: -9 bps to 2.97%
  • $47 bln 2-year Treasury note auction results (prior 12-auction average):
  • High yield: 2.519% (0.865%).
  • Bid-to-cover: 2.61 (2.35).
  • Indirect bid: 62.6% (52.2%).
  • Direct bid: 22.1% (17.6%).

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%.

News Highlights

Market Notables

USA

Europe

  • European Central Bank President Lagarde repeated her expectations for positive rates being reached by the end of Q3, but some policymakers would reportedly prefer swifter rate hikes.
  • British Chancellor of the Exchequer Sunak is planning a windfall tax on over GBP10 bln in profits by electricity companies.
  • Spain’s Prime Minister Sanchez indicated that a cap on the price of gas will be implemented.
  • Eurozone’s May flash Manufacturing PMI fell to 54.4 from 55.5 (expected 54.9) and flash Services PMI fell to 56.3 from 57.7 (expected 57.5).
  • Germany’s May flash Manufacturing PMI rose to 54.7 from 54.6 (expected 54.0) and flash Services PMI fell to 56.3 from 57.6 (expected 57.2).
  • U.K.’s May flash Manufacturing PMI fell to 54.6 from 55.8 (expected 54.9) and flash Services PMI fell to 51.8 from 58.9 (expected 56.9). May CBI Distributive Trades Survey improved to -1 from -35 (expected -30). April Public Sector Net Borrowing reached GBP17.80 bln (expected GBP17.85 bln; last GBP13.91 bln).
  • France’s May flash Manufacturing PMI fell to 54.5 from 55.7 (expected 55.0) and flash Services PMI fell to 58.4 from 58.9 (expected 58.6). May Business Survey fell to 106 from 108 (expected 107).

Asia

  • China Securities Journal speculated that special sovereign bonds may be issued to help the economy.
  • Former Japanese Prime Minister Abe said that Japan needs to spend at least JPY6.5 trln on defense.
  • Toyota expects to produce 850,000 units in June and 9.7 mln units in FY23.
  • Japan’s May flash Manufacturing PMI fell to 53.2 from 53.5 and flash Services PMI rose to 51.7 from 50.7. April BoJ Core CPI was up 1.4% yr/yr (expected 1.1%; last 1.1%).
  • South Korea’s May Consumer Confidence fell to 102.6 from 103.8.
  • Australia’s May flash Manufacturing PMI fell to 55.3 from 58.8 and flash Services PMI fell to 53.0 from 56.1.

Looking ahead:

The Day Ahead:

  • Traders Market Weekly: Bear Jitters as Risk Factors Deepen – TRADERS COMMUNITY
  • Monday: Nothing of note
  • Tuesday: Preliminary May IHS Markit Manufacturing PMI (prior 59.2) and preliminary May IHS Services PMI (prior 55.6) at 9:45 ET; April New Home Sales (prior 763,000) at 10:00 ET; and $47 bln 2-yr Treasury note auction results at 13:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -11.0%) at 7:00 ET; April Durable Orders (prior 0.8%) and Durable Orders ex-transportation (prior 1.1%) at 8:30 ET; weekly crude oil inventories (prior -3.39 mln) at 10:30 ET; $48 bln 5-yr Treasury note auction results at 13:00 ET; and May FOMC Minutes at 14:00 ET
  • Thursday: Q1 GDP — second estimate (prior -1.4%), Q1 GDP Deflator — second estimate (prior 8.0%), weekly Initial Claims (prior 218,000), Continuing Claims (prior 1.317 mln) at 8:30 ET; April Pending Home Sales (prior -1.2%) at 10:00 ET; weekly natural gas inventories (prior +89 bcf) at 10:30 ET; and $42 bln 7-yr Treasury note auction result at 13:00 ET
  • Friday: April Personal Income (prior 0.5%), Personal Spending (prior 1.1%), PCE Prices (prior 0.9%), Core PCE Prices (prior 0.3%), April advance goods trade deficit (prior -$125.30 bln), April advance Retail Inventories (prior 2.0%), and April advance Wholesale Inventories (prior 2.3%) at 8:30 ET; and final May University of Michigan Consumer Sentiment survey (prior 59.1) at 10:00 ET

Wednesday, May 25

WASHINGTON – Federal Reserve Vice Chair Lael Brainard gives commencement remarks before the Johns Hopkins University School of Advance International Studies 2022 Commencement Ceremony, 1215 EDT/1615 GMT. Text available. No Q&A. Webcast at https://www.youtube.com/watch?v=d4z2VRB4GZU. DAR Constitution Hall, 1776 18th Street N.W. Contact: Danielle Khan, dkhan@jhu.edu or 202 963 8865

Monday, May 23

ATLANTA – Federal Reserve Bank of Atlanta President Raphael Bostic participates in conversation on the economic outlook before an Atlanta Rotary event, 1200 EDT/1600 GMT. No livestream. Audience and media Q&As expected. No embargoed text. Loudermilk Conference Center, 40 Courtland Street. RSVP to attend: media Karen Mracek, karen.mracek@atl.frb.org

Earnings:


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!