Yesterday we saw the loose stock longs sell off ahead of the Fed and total the shorts cover. The move to the upside comes after the NASDAQ price closed yesterday under the previous low for the year from February 24 causing some auto shorts. Given that some short covering fed the squeeze today. The FOMC is expected to raise rates by 25 basis points tomorrow at 2 PM ET, a series of rate hikes in 2022 and potentially into 2023. The Fed dot plot from December was for three rate hikes. Market economists are six or seven now with The Fed expected to push to 4 or 5. Since December we have Russia attack Ukraine and another COVID wave hit China, so there is that to factor in also.
After hours SMAR was the big loser when they reported earnings and lowered guidance. This is a high-risk earnings season. We saw another Bear Market rally fail after initially soaring on BTFD. We look at the indices, $AAPL, $AMZN, Gold, Copper, BTC, ETH, Natgas and oil in the podcast. We talk through 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 & @velocityradar 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.
Market Closes
Energy
- April WTI crude oil (CLJ22) futures settled lower by $6.66 (-6.5%) to $96.16/barrel.
- Off the high price of $129.44. The highest in 2008 was $147.27.
- April RBOB gasoline (RBJ22) closed down -17.08 (-5.39%).
- April Nymex natural gas (NGJ22) settled at $4.568/MMBtu, down 9.0 cents day/day. May fell 8.5 cents to $4.617.
- Maxar’s Weather Desk projected “waning” above-normal temperatures for the eastern Lower 48 during the 11-15 day time frame (March 25-29) in its latest forecast Tuesday.
- “The models are in good agreement for a trough to settle over the East, out ahead of which are continued above early in the period before cooling toward normal in the second half,” Maxar said.
- “The energy market fallout from Russia’s egregious invasion in Ukraine continues,” said EBW Analytics Group’s Eli Rubin, senior analyst. Traders “are pulling back from Russian supplies, with estimates of 2-3 million b/d of oil and product supply unable to find buyers as traders fear official new sanctions, desire to avoid being seen financing Russia, and freight and insurance costs spike.”
- BNEF data showed gas flows to U.S. export terminals Tuesday rose +7.9% y/y to 12.166 bcf. On Feb 18, gas flows to U.S. export terminals rose to a record 13.482 bcf.
Commodities and FX
- The U.S. Dollar Index was little changed at 98.99.
- Gold futures settled $31.10 lower (-1.6%) to $1,929.70/oz, a near two-week low ahead of this week’s Fed meeting.
- May silver (SIK22) closed down -0.140 (-0.55%)
- CME Bitcoin Futures Settle MAR 22 +930 39760
Stocks
For The Day
- Dow industrial average up 599.10 points or 1.82% up 33544.35
- S&P index up 89.34 points or 2.14% 4262.47
- NASDAQ index up 367.41 points or 2.92% at 12948.63
- Russell 2000 up 27.25 points or 1.4% at 1968.96
- NYSE Adv 2232 Dec 998 Vol 1.2 bln
- Nasdaq Adv 2554 Dec 1645 Vol 5.3 bln
S&P 500 sector watch:
- 10 of the 11 S&P 500 sectors closed higher
- S&P 500 information technology (+3.4%), consumer discretionary (+3.4%), consumer staples +2.2%, real estate +0.8%, and materials +1.2%.
- The Energy sector (-3.7%) was the only sector that closed lower
Key Earnings Reviews
- Coupa Software (COUP 63.00, -26.82): -29.9% after guiding fiscal Q1 revenue below consensus and guiding FY23 EPS and revenue below consensus. The company noted that the pandemic has required multiple years of outsized new business growth in order to recover and get back on track.
- lululemon athletica (LULU 285.14, -4.10): -1.4% after the stock was initiated with an Underperform rating at Bernstein. The same firm initiated Nike (NKE 117.5, -0.70, -0.1%) with an Outperform rating.
- Zoom Video (ZM 97.17, +2.53): +2.7% after receiving an analyst upgrade to Buy from Hold at The Benchmark Company.
- Vail Resorts (MTN 241.15, -0.85): -0.4% after missing top and bottom-line estimates and increasing the midpoint of its FY22 EBITDA guidance.
US Markets YTD
- Dow Jones Industrial Average -7.7% YTD
- S&P 500 -10.6% YTD
- Russell 2000 -12.3% YTD
- Nasdaq Composite -17.2% YTD
Cboe Daily Market Ratios:
Europe
- German Dax, Unchanged
- France’s CAC -0.25%
- UK FTSE 100, -0.25%
- Spain’s Ibex, Unchanged
- Italy’s FTSE MIB +0.2%
Asia
- Japan’s Nikkei: +0.2%
- Hong Kong’s Hang Seng: -5.7%
- China’s Shanghai Composite: -5.0%
- India’s Sensex: -1.3%
- South Korea’s Kospi: -0.9%
- Australia’s ASX All Ordinaries: -0.9%.
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 2-yr yield increased two basis points to 1.86% after touching 1.79% intraday, and the 10-yr yield increased two basis points to 2.16% after touching 2.08% intraday.
- 2-yr: +2 bps to 1.86%
- 3-yr: +2 bps to 2.05%
- 5-yr: +3 bps to 2.11%
- 10-yr: +2 bps to 2.16%
- 30-yr: +2 bps to 2.50%
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
USA
- Producer Price Index rose 0.8% m/m in February (consensus +1.0%), and core producer prices rose 0.2% m/m (consensus +0.6%). Year-over-year, producer prices held steady at 10.0% (January revised from 9.7%) while core producer prices were up 8.4% (vs. +8.3% in January).
- Separately, the Empire State Manufacturing Survey for March dropped to -11.8 (consensus 9.0) from 3.1 in February.
Europe
- UK’s February Claimant Count Change -48.1K (expected -28.0K; prior -67.3K); January Unemployment Rate 3.9% (expected 4.0%; prior 4.1%)
- France’s February CPI +0.8% m/m (expected +0.7%; prior +0.3%) and 3.6% yr/yr (expected 3.6%; prior 2.9%)
- Germany’s March ZEW Economic Sentiment -39.3 (expected 10.0; prior 54.3)
- Eurozone’s January Industrial Production 0.0% m/m (expected +0.1%; prior +1.3%) and -1.3% yr/yr (expected -0.5%; prior +2.0%)
- The weakness is being attributed in large part to growth concerns tied to rising energy prices, plunging economic sentiment, as seen in Germany’s March ZEW Economic Sentiment reading, a striking uptick in COVID cases, the ongoing uncertainty of the Russia-Ukraine situation, and potential tightening actions by central banks.
- Additionally, worries about bank exposure to a potential Russian debt default, and weakening demand from China as it battles with a COVID case surge, have acted as further drags on investor sentiment.
- A sharp drop in oil prices, which is related to the growth concerns, has provided a small measure of support but it hasn’t been enough to offset the broader concerns.
Asia
- China’s Jan-Feb Retail Sales +6.7% yr/yr (+3.0% expected; prior +1.7%); Jan-Feb Industrial Production +7.5% yr/yr (+3.9% expected; prior +4.3%); Jan-Feb Fixed Asset Investment +12.2% yr/yr (+5.0% expected; prior +4.9%); February Unemployment Rate 5.5% (+5.15 expected; prior +5.1%)
- South Korea’s revised February Exports +20.6% yr/yr (prior +20.6%) and revised Imports +25.2% (prior +25.1%)
- Australia’s Q4 House Price Index +4.7% qtr/qtr (+3.9% expected; prior +5.0%)
- The Hang Seng plunged another 5.7% (now down 10.4% for the week) and the Shanghai Composite plunged 5.0% (now down 7.4% for the week). The thrust of the selling was driven by myriad concerns, including growth worries tied to more Chinese cities being put in lockdown mode because of rising COVID cases, worries that China could face secondary sanctions if found to be helping Russia evade U.S. sanctions, continued de-listing concerns for Chinese securities, continued crackdown concerns as Tencent reportedly faces the possibility of a record fine for allegedly violating money laundering rules, and continued troubles for the property market.
- The sell-off came in spite of much better than expected retail sales, industrial production, and fixed asset investment data, and the PBOC injecting CNY100 bln of liquidity into the financial system, demonstrating that the worries about a slowdown in growth due to COVID issues had more impact as a forward-looking market driver.
- South Korea reported record-high COVID cases.
Looking ahead:
Monday:
- India, February consumer price index (CPI) data,
- UK, Office for National Statistics annual review of the “shopping basket” of items making up the suite of consumer price inflation indices
Tuesday:
- Canada, January manufacturing data
- China, monthly retail sales figures
- EU, January industrial production data France, February inflation rate Germany, research group ZEW economic sentiment survey
- India, trade statistics
- Japan, balance of trade data
- Opec monthly oil market report
- UK, March payroll employment figures plus February insolvency numbers
- US: February labour statistics US February PPI (prior 1.0%), Core PPI (prior 0.8%), and March Empire State Manufacturing Survey (prior 3.1) at 8:30 ET
Wednesday:
- Canada, February CPI data
- International Energy Agency monthly oil market report
- Italy, February CPI data
- Japan, January industrial production figures
- US: Weekly MBA Mortgage Index (prior 8.5%) at 7:00 ET; February Retail Sales (prior 3.8%), Retail Sales ex-auto (prior 3.3%), and February Import/Export Prices at 8:30 ET; January Business Inventories (prior 2.1%) and March NAHB Housing Market Index (prior 82) at 10:00 ET; weekly crude oil inventories (prior -1.86 mln) at 10:30 ET; and March FOMC Rate Decision (prior 0-0.25%) at 14:00 ET
Thursday:
- St Patrick’s day: Irish taoiseach Michael Martin will hold the annual shamrock ceremony with US president Joe Biden in Washington
- Norway, 23 Nato members plus Finland and Sweden begin winter exercises in northern Norway in the Cold Response 2022 event
- Australia, Reserve Bank of Australia’s quarterly bulletin
- EU, February inflation data
- Japan, two-day Bank of Japan monetary policy committee meeting begins plus February CPI data
- Spain, January trade balance figures
- UK, Bank of England’s monetary policy committee vote on interest rates
- US: February Housing Starts (prior 1.638 mln), Building Permits (prior 1.899 mln), weekly Initial Claims (prior 227,000), Continuing Claims (prior 1.494 mln), and March Philadelphia Fed Survey (prior 16.0) at 8:30 ET; February Industrial Production (prior 1.4%) and Capacity Utilization (prior 77.6%) at 9:15 ET; and weekly natural gas inventories (prior -124 bcf) at 10:30 ET
Friday:
- Holi, the Hindu festival of colors
- Sikh festival of Hola Mahalla begins
- Canada, January retail trade figures EU, January trade figures Italy, January trade balance figures UK, February retail sales figures
- US: Quadruple Witching Day, when stock index futures, stock index options, stock options and single-stock futures expire February Existing Home Sales (prior 6.50 mln) at 10:00 ET
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!