Market Wrap – Window Dressing to Perfection Right into The Slot

Stock markets gave a repeat of Friday’s ramp right into the target zone right to the 4500 SPX ES_F OI level. Another Bear Market rally or something more after initially soaring on BTFD. The major indices closed sharply higher on the day as gains accelerated into and last day of the trading month. While the major indices are still down on the month, the losses were slashed the last few days. Oil was back around 7-year highs, and HH natural gas soared to $5 on freezing weather. Treasuries finished with 10-yr note to unchanged by the close while shorter tenors finished with modest gains while equities rallied. We look at the indices, $AAPL, Gold, Copper, BTC, ETH, Natgas and oil in the podcast.

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 & Kimo plot out 2022.

Around the table today was packed with our outlook on the Fed Reserve FOMC, Ukraine and US energy policy and global disorder. Topics included the Fed, geopolitics, domestic political influence and distortions, reading sentiment, patterns and order flow. 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) settled higher by 1.6%, or $1.42, to $88.16/bbl. 
  • March RBOB gasoline (RBH22) closed up +1.65 (+0.65%).  
  • Baker Hughes reported last Friday that active U.S. oil rigs in the week ended Jan 28 rose by +4 rigs to a 1-3/4 year high of 495 rigs.  U.S. active oil rigs have risen sharply from the Aug-2022 15-year low of 172 rigs, signaling an increase in U.S. crude oil production capacity.
  • March Nymex natural gas (NGH22) on Monday closed up by +0.235 (+5.07%).
  • NOAA said that colder-than-normal temperatures are expected across most of the Central and Eastern U.S. through the first week of February. 
  • 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 Monday were up +110.5% y/y at 11.93 bcf, just below the Dec 19 record of 13.1 bcf.

Metals and FX

  • The dollar index (DXY00) fell 0.7% to 96.55 back to its closing level from Wednesday and off the 1-1/2 year high on carry-over support when Fed Chair Powell said he favors a Fed rate hike in March.  
  • February gold (GCG22) settled $9.80 higher (+0.6%) to $1,796.40/oz, rebounding modestly from last week’s losses, Gold closed January with a nearly -1.8% decline.
  • March silver (SIH22) closed up +0.092 (+0.41%).  
  • Bitcoin up at 38,480 retesting key 39600 low

Stocks

For the month

  • 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

For The Day

  • Dow industrial average up 406.37 points or 1.17% at 35131.85. The Dow all-time high close at 36952.65.
  • S&P index rose 83.67 points ro 1.89% at 4515.53 The S&P all-time high close at 4818.62.
  • NASDAQ rose 469.32 points or 3.41% at 14239.89 The Nasdaq all-time high.
  • Russell 2000 rose 59.94 points or 3.05% at 2028.45. The Russell 2000
  • Rebalancing into growth stocks was further aided by positive-minded analyst recommendations
  • Tesla (TSLA 936.72, +90.37, +10.7%), Netflix (NFLX 427.14, +42.78, +11.1%), Spotify (SPOT 196.26, +23.28, +13.5%), and Beyond Meat (BYND 65.13, +8.59, +15.2%) all upgraded to the equivalent of Buy ratings.
  • CBOE Volatility Index VIX 24.83AT CLOSE‎ -2.83 (‎-10.23%)
  • NYSE Adv 2673 Dec 621 Vol 1.4 bln
  • Nasdaq Adv 3564 Dec 805 Vol 5.0 bln

Recall Last Week: 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

Ark of the Covenant not as it appears

ARK ETF

  • ARKK 75.32▲ 6.41 (9.30%)
  • ARKG 49.70▲ 3.76 (8.18%)
  • ARK X 16.40▲ 0.58 (3.67%)
  • ARK F 32.56▲ 2.59 (8.64%)
  • ARK W 94.71▲ 7.44 (8.53%)

Cboe Daily Market Ratios:

Cboe Daily Market Statistics

S&P 500 sector watch:

  • 11 of the 11 S&P 500 sectors closed higher
  • Consumer discretionary (+3.8%), information technology (+2.7%), and communication services (+2.4%) sectors, which contain the mega-caps, the energy sector increased just 0.4%. 

Markets YTD

  • Dow Jones Industrial Average -3.3% YTD
  • S&P 500 -5.3% YTD
  • Nasdaq Composite -9.0% YTD
  • Russell 2000 -9.7% YTD

Europe

  • German DAX, +1%
  • France’s CAC, +0.5%
  • UK’s FTSE 100, -0.05%
  • Spain’s Ibex, unchanged
  • Italy’s FTSE MIB +0.95%

Asia

Lunar New Year will keep South Korea’s KOSPI closed through Wednesday

China’s Shanghai Composite will be closed throughout the week. 

Bonds

U.S. Treasuries finished with 10-yr note to unchanged by the close while shorter tenors finished with modest gains while equities rallied. 

  • 2-yr: -1 bp to 1.16%
  • 3-yr: -1 bp to 1.37%
  • 5-yr: -1 bp to 1.61%
  • 10-yr: UNCH at 1.78%
  • 30-yr: +2 bps to 2.10%

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%.

Earnings

News Highlights

USA

  • The Fed’s January Senior Loan Officer Survey showed that demand for commercial and industrial loans from firms of all sizes strengthened in Q4 while standards eased. Standards on residential real estate and home equity loans also eased while overall demand weakened. Standards for other consumer loans also eased in Q4 while demand was mixed. Many banks expected overall loan demand to strengthen in 2022.
  • The Chicago PMI increased to 65.2 in January (Briefing.com consensus 62.5) from a revised 64.3 (from 63.1) in December.

Natural Gas Squeezes in Largest One Day Percentage Move on Record as Traders Caught Short Molecules – TRADERS COMMUNITY

Into settlement Natural gas squeezed for the largest one-day percentage move on record and highest finish since October. February delivery settled at $6.265 per million British thermal units, up $1.99, or 46.5% on NYMEX. Earlier in the day the EIA reported a higher-than-expected draw of -219 Bcf of working gas in storage. U.S. domestic natural gas demand continues strained with volatile weather.  Natural gas futures soared yesterday after the Atmospheric G2 model showed the largest reversal this winter, meaning projected heated demand is much higher for the next two weeks. There is a massive snowstorm heading toward the East Coast.

Into The Vortex – EIA Reports a Draw of -219 Bcf in Natural Gas Storage – TRADERS COMMUNITY

U.S. domestic natural gas demand is being strained with volatile weather.  Freezing temperatures in the Central U.S. and below-normal temperatures on the East Coast has boosted demand to highest since 2019.  Last week EIA reported a higher-than-expected draw of -219 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.

IMF Cuts 2022 Global Growth With US, China and EU all Downgraded – TRADERS COMMUNITY

The International Monetary Fund on Tuesday downgraded its 2022 global growth forecast to 4.4% in its World Economic Outlook report. The IMF said it expects global gross domestic product to grow 0.5% less than previously estimated. The revision is largely due to lower growth in the world’s two largest economies: the U.S. and China. Rising Covid-19 cases, supply chain disruptions and higher inflation have hampered the economic recovery.

Europe

  • Italy’s President Mattarella was convinced to accept another term after the country’s parliament failed to elect a new leader.
  • Saipem fell to its low from 2020 in Milan after withdrawing its guidance and warning about a potential need to raise cash.
  • Eurozone’s Q4 GDP expanded 0.3% qtr/qtr, as expected (last 2.2%), growing 4.6% yr/yr (expected 4.7%; last 3.9%).
  • Italy’s Q4 GDP expanded 0.6% qtr/qtr (expected 0.5%; last 2.6%), growing 6.4% yr/yr (expected 6.2%; last 3.9%).
  • Spain’s January CPI was down 0.5% m/m (expected 1.3%; last 1.2%) but up 6.0% yr/yr (expected 6.7%; last 6.5%). December Retail Sales fell 2.3% yr/yr (last 5.1%). November Current Account surplus reached EUR1.01 bln (last surplus of EUR2.14 bln).

Asia

  • North Korea conducted its seventh missile test of the month.
  • China’s January Manufacturing PMI fell to 50.1 from 50.3 (expected 50.0) and Non-Manufacturing PMI fell to 51.1 from 52.7. January Caixin Manufacturing PMI fell to 49.1 from 50.9 (expected 50.4).
  • Japan’s December Industrial Production fell 1.0% m/m (expected -0.8%; last 7.0%), December Retail Sales rose 1.4% yr/yr (expected 2.7%; last 1.9%), and December Housing Starts increased 4.2% yr/yr (expected 7.8%; last 3.7%). January Household Confidence fell to 36.7 from 39.1 (expected 36.9).
  • Australia’s December Private Sector Credit rose 0.8% m/m (expected 0.7%; last 0.9%).
  • Singapore’s Q4 Business Expectations fell to 8.00 from 16.00.
  • Hong Kong’s December Retail Sales grew 6.2% yr/yr (last 7.1%).

US December CPI +7.0% y/y largest Increase in Consumer Inflation since June 1982 – TRADERS COMMUNITY

US CPI in December rose 0.5% m/m in December (consensus +0.4%). Core CPI rose 0.6% (consensus +0.5%). On a year-over-year basis, total CPI is up 7.0% (versus 6.8% in November) and core CPI is up 5.5% (versus 4.9% November). Inflation remains persistently high as Central Bankers keep trying to reassure us that soaring inflation will come under control.

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

Looking ahead:

  • 9:45 ET: Final January IHS Markit Manufacturing PMI (prior 57.7)
  • 10:00 ET: December Construction Spending (Briefing.com consensus 0.6%; prior 0.4%), January ISM Manufacturing Index (Briefing.com consensus 57.5%; prior 58.7%), and December JOLTS — Job Openings (prior 10.562 mln)

Earnings we are watching before tomorrow’s open:

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!