Market Wrap – The Beats Goes On With Stocks and Bonds Rotation March 22, 2022

The Stock markets continued to rally since last Monday’s death cross call on the Nasdaq. The Nasdaq (+2.0%), S&P 500 (+1.1%) and Dow (+0.7%). Today’s rally took the S&P 500 back above its 200-day moving average (4473) after that area offered slight resistance on Monday while the Nasdaq reclaimed its 50-day moving average (13831). Selling across the curve drove Treasury yields to fresh highs for the year with the 10-yr yield rising six basis points to 2.37%.

Today’s the focus was on Chinese stocks after the $BABA buyback and the Tencent beat. We traded and discussed a plethora of names, including $QI, $UXIN, $ZME, $JD in that space. We also traded $DPRO and discussed recognizing a secondary or large investor unloading stock. We look at the indices, $MULN, 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 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

  • May WTI crude oil futures settled down $0.73, or 0.7%, to $109.48/bbl.
  • Off the high price of $129.44. The highest in 2008 was $147.27.
  • April RBOB gasoline (RBJ22) closed down -4.09 (-1.21%).
  • April Nymex natural gas (NGJ22) on Tuesday closed up by +0.287 (+5.86%).
  • The Commodity Weather Group said it expects below-normal temperatures for the East from March 26-30.  Also, the midday update to the Global Forecast System weather model shifted colder for the North and Central U.S. from March 27-April 4.  
  • “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 +3.6% w/w to 13.0 bcf.  On Saturday, gas flows to U.S. export terminals rose to a record 13.77 bcf.

Commodities and FX

  • The U.S. Dollar Index was flat, but the USD made a big move against the yen, up 1.1% to 120.73, hitting its highest level since February 2016. 
  • Gold futures settled $8.00 lower (-0.4%) to $1,921.50/oz, pressured in part by gains in treasury yields, continuing recent gains following Chair Powell’s comments yesterday.
  • May silver (SIK22) closed down -0.409 (-1.62%).
  • CME Bitcoin Futures Settle MAR 22 +1170 42390.0

Stocks

For The Day

  • Dow industrial average rose 254.45 points or 0.74% at 34807.45
  • S&P index rose 50.43 points or 1.13% at 4511.60
  • NASDAQ index rose 270.37 points or 1.95% at 14108.83
  • Russell 2000 rose 22.40 points or 1.08% at 2088.34.
  • NYSE Adv 1946 Dec 1237 Vol 1.07 bln
  • Nasdaq Adv 3082 Dec 1355 Vol 5.32 bln

S&P 500 sector watch:

  • 10 of the 11 S&P 500 sectors closed higher
  • Consumer discretionary (+2.5%), communication services (+2.0%), technology (+1.4%) and financials (+1.6%)
  • Energy sector (-0.6%) was the lone decliner

Key Earnings Reviews


Nike’s (NKE) incredible brand power was on display in 3Q22 as the company exceeded earnings and revenue expectations, even as supply chain and logistics disruptions continued to create major obstacles. If it weren’t for those inventory-limiting issues, NKE believes that its results would have been even stronger. This assertion is reflected in NKE’s reaffirmation of FY22 guidance, which still calls for mid-single-digit revenue growth, driven by robust demand and an improving supply chain situation.


US Markets YTD

  • Dow Jones Industrial Average -4.2% YTD
  • S&P 500 -5.3% YTD
  • Russell 2000 -7.0% YTD
  • Nasdaq Composite -9.8% YTD

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

Europe

  • STOXX Europe 600: +0.4%
  • Germany’s DAX: +0.8%
  • U.K.’s FTSE 100: +0.3%
  • France’s CAC 40: +0.9%
  • Italy’s FTSE MIB: +1.0%
  • Spain’s IBEX 35: +0.8%

Asia

  • Japan’s Nikkei: +1.5%
  • Hong Kong’s Hang Seng: +3.2%
  • China’s Shanghai Composite: +0.2%
  • India’s Sensex: +1.2%
  • South Korea’s Kospi: +0.9%
  • Australia’s ASX All Ordinaries: +0.8%

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 another leg lower today, which sent yields higher across the curve. A belief that the Fed will take a more aggressive policy approach in the near term to help ensure price stability was another factor behind today’s weakness

  • 2-yr: +2 bps to 2.15%
  • 3-yr: +4 bps to 2.38%
  • 5-yr: +4 bps to 2.38%
  • 10-yr: +7 bps to 2.38%
  • 30-yr: +7 bps to 2.60%

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

  • Ukrainian President Zelenskyy continues to assert that he is ready to talk about a peace deal with Russia, but that Ukraine will not cede Ukrainian territory in such a deal
  • President Biden says Putin’s “back is against the wall” and warns of potential false flag being raised by Russia, which is asserting Ukraine has biological and chemical weapons
  • National Security Advisor Jake Sullivan at press conference says President Biden and EU leaders will decide Thursday what they should do if Russia uses a nuclear, chemical, or biological weapon in Ukraine
  • CNBC reports that an EU embargo on Russian oil imports is “unlikely at this point”
  • ECB member Nagel is warning of the rising risks associated with moving too late to normalize monetary policy and ECB member Rehn said it is possible rate hikes could start in late 2022 or early 2023, depending on how the economy evolves

Europe

  • Germany’s February PPI +1.4% m/m (expected +1.7%; prior +2.2%) and +25.9% yr/yr (expected +26.2%; prior +25.0%)
  • The EU is considering an embargo on Russian oil
  • ECB member Knot has suggested that it is not unrealistic to expect a rate hike in 2022

Asia

  • The PBOC left the loan prime rates unchanged, although speculation persisted that China will ultimately provide monetary and fiscal stimulus to support the economy
  • Reuters reported that Australia announced a ban on alumina and aluminum ores exports to Russia.

Looking ahead:

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!