Traders Market Weekly: Expect the Unexpected

October 15 – 21, 2022

FEAR NOT Brave Investors

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The Week That Was – What Lies Ahead?

Contents

Click on the links below to navigate to the relevant section.

Editorial

One of our premier edicts is ‘Expect the Unexpected’ and this week was a great showcase of why. The S&P index has posted up or down 2% reversal days, up or down, six times since January, the wildest year since the 2008 financial crisis. That is just stocks, commodities, bonds and currencies have all seen historic volatility.

In technical terms Thursday was a classic one-two punch to the markets underscoring the extreme volatility in Stocks, Bonds and currencies in an illiquid emotion led time. Friday the S&P 500 popped over 3,700 before the market spent the rest of the session selling off to close below 3,600. This followed a 100 down and 200 handle up rally after a disappointing September CPI report fueled by delta covering by institutions who had bought more than $US10 billion in puts on individual stocks last week according to Sundial Capital Research.

The market had got extremely bearish and reversed after UK Prime Minister Truss said the UK will keep its planned corporate tax rate increase in effect and that the UK will deliver a medium-term fiscal plan on October 31. UK faces dual fiscal and monetary policy crises of confidence; it is but one flashpoint of a global crisis. The 10-yr gilt yields traded as high as 4.63% in Wednesday, dropped to a low of 3.89% early Friday, before ending the week up 10 bps to 4.34%.  Speculation that Finance Minister Kwarteng was fired after a mere 38 days, while an entire government hangs in the balance.

We had a slew of Bank earnings with gains in JPMorgan Chase (JPM 111.19, +1.82, +1.7%), USB Bancorp (USB 42.76 +1.39 +3.36%), Citigroup (43.23, +0.28, +0.7%), and Wells Fargo (WFC 43.17, +0.79, +1.9%) all reporting better-than-expected earnings results. However, (PNC 149.70 ▼ -1.77 -1.17%) and Morgan Stanley (MS 75.30 -4.02 -5.07%) closed lower.

Ahead of Monday’s open, Bank of America (BAC), Charles Schwab (SCHW), and BNY Mellon (BK) are set to report earnings.

Gilts rose 19 basis points to 4.38% and GBPUSD dumped 1.4% to 1.1176. This is in a market ahead where the Bank of England ends its emergency liquidity support for the gilt market. Back in the US rising inflation expectations in the preliminary October University of Michigan Index of Consumer Sentiment saw Treasury yields rise. The 10-yr note yield settled above the 4.00% level, up six basis points on the day and 13 on the week to 4.01%. The 2-yr note yield rose five basis points on the day and 20 on the week to 4.50%.

Liquidity Draining from the World Financial System 

“The latest bout of global financial volatility has heightened concerns about regulators’ continuing failure to resolve liquidity problems with US Treasuries — the debt that serves as a benchmark for the world. It’s getting harder and harder to buy and sell Treasuries in large quantities without those trades moving the market. Market depth, as the measure is known, last Thursday hit the worst level since the throes of the Covid-19 crisis in the spring of 2020, when the Federal Reserve was forced into massive intervention.”

October 6 – Bloomberg (Liz Capo McCormick)

The market rupture is a tripod of destruction unfolding. Firstly, financial asset overvaluation has swung way past any sound underlying economic wealth structure. Secondly over-leverage in crowded bets. Thirdly we have greed enthused, as always in these cycles, risk engineering, transfer and management that ignores or understands bifurcation and contagion outcomes.

The pattern of trashing interest rate-sensitive technology stocks and early-stage companies with no pathway to profits continued globally these issues posted huge losses again. The only support is coming from government assisted ‘fake markets’ such as solar. We all know how transitory that can be.

Leverage has become toxic, a development that if not addressed will have deep and with far-reaching sequels. It’s not too farfetched to suggest that the markets are on the verge of a rupture that would be difficult to contain. Should the crisis of confidence dynamics that hit Britain feed into other markets a powerful global contagion could be unleashed. The markets are dislocated, and financial stability is at risk. A sobering thought is the UK is just the initial first world pension system in this cycle facing the harsh reality of a steep devaluation of assets and the prospect of widespread insolvencies and debilitating negative sentiment.

More kerosene was thrown on the fire when Goldman Sachs slashed its year-end target for the S&P 500 Index to 3600 from 4300, arguing that a dramatic shift in the outlook for interest rates moving higher from the FOMC will weigh on valuations for US equities.

The higher interest rate scenario in Goldman’s valuation model supports a price-earnings multiple of 15 times, down from 18 times previously. The update by FedEx of their earnings and announced $2.9 billion in cost savings highlighted the global risk. Goldman said the risks to its latest forecast are still skewed to the downside because of the rising odds of recession that would widen the yield gap and potentially push the US equity benchmark to a trough of 3150.

Bank CDS Prices Surged (Again)

“Anyone doubting that liquidity is draining from the world financial system just has to look at the daily swings in interest-rate swaps. It’s one of the world’s deepest markets, where large financial institutions go to hedge long-term risks. And it’s being hit by unusual volatility. The gap between the floating- and fixed-rate legs of longer-dated swaps tied to the Secured Overnight Financing Rate narrowed by over 7 bps to minus 75 bps on Tuesday, only to widen back by over 5 bps the following day. Both were the largest one-day moves in either direction on record for the index, which was rolled out in October 2020 as a replacement for the London interbank offered rate.”

September 29 – Bloomberg (Edward Bolingbroke)

Let’s take a step back at cracks already deepened. Global bank CDS are imploding.

  • Chinese bank CDS jumped to multi-year highs. China Construction Bank rose 13 to 143 bps; Industrial and Commercial Bank 12 to 137 bps; Bank of China 10 to 136 bps; and China Development Bank 12 to 126 bps. “AMC” China Huarong CDS jumped 41 to 635 bps (began the year at 261bps). China sovereign CDS traded up to 115 bps Thursday, the high since early-2017. The renminbi lost 1.1% versus the dollar, trading near the low back to 2008.
  • UK’s Barclays Bank CDS jumped 11 to 147 bps, the high back to July 2013 (“taper tantrum”). Barclays CDS traded at 105 bps on September 15th. NatWest CDS increased four to 131 bps, and Lloyds rose seven to 97 bps (trading this week to the high since 2016).
  • US banks CDS Friday closes at highs since March 2020. JPMorgan CDS rose eight to 112 bps, with Bank of America up nine to 121 bps. Citigroup CDS rose seven to 139 bps, Goldman 11 to 142 bps, and Morgan Stanley nine to 140 bps.
  • In Europe Deutsche Bank CDS increased four to 173 bps (trading intraday Wednesday to 189 bps); Societe Generale 13 to 110 bps (intraday Thursday to 120 bps); and troubled Credit Suisse 12 to 318 bps (intraday Thursday to 341 bps).
  • U.S. investment-grade corporate spreads-to-Treasuries widened 11 bps this week to 1.63 percentage points, the widest level since May 2020.

Ahead is Inflation, Big Bank Earnings and More

More central banks:

Elevated inflation readings provide details on whether price pressures are easing meaningfully. All eyes will be on the earnings season, which starts this month, for insight into how companies are managing through headwinds that include a strong dollar, rising expenses and slowing demand. Fears of a global recession are still mounting as the threat of higher rates saps growth. BoE is in the eye of the storm for now.

Not a heavy central banker week but there could be a few noteworthy developments.

Monday, October 17, 2022

  • 04:00 EUR ECB’s De Guindos Speaks
  • 06:00 EUR German Buba Monthly Report
  • 10:30 CAD BoC Business Outlook Survey
  • 11:00 EUR ECB’s Lane Speaks
  • 15:00 EUR German Buba President Nagel Speaks
  • 16:00 CAD BoC Senior Deputy Governor Rogers Speaks
  • 20:05 AUD RBA Assist Gov Bullock Speaks
  • 20:30 AUD RBA Meeting Minutes

Tuesday, October 18, 2022

  • 12:00 EUR ECB’s Schnabel Speaks
  • 13:00 EUR German Buba President Nagel Speaks
  • 21:30 JPY BoJ Board Member Adachi Speaks

Wednesday, October 19, 2022

  • 11:00 GBP BoE MPC Member Mann
  • 14:00 USD Federal Reserve Beige Book update
  • 19:30 USD FOMC St. Louis Fed’s James Bullard Speaks
  • 21:15 CNY PBoC Loan Prime Rate Monetary policy decision from the People’s Bank of China

Thursday, October 20, 2022

  • Indonesia monetary authority will decide new policy rate Central
  • Central Bank of Turkey is expected to cut its interest rate by 100bps for the third time to 11% when it meets
  • 13:30 USD Fed Governor Jefferson Speaks
  • 13:45 USD Fed Governor Cook Speaks
  • 14:05 USD FOMC Member Bowman Speaks

Friday, October 21, 2022

  • Last day that Federal Reserve board members can make public comments before the blackout period ahead of the November meeting.
  • 09:10 USD FOMC Member Williams Speaks

Economic Data

  • In the US, housing indicators including housing starts, building permits and existing home sales. New York and Philadelphia Fed Manufacturing Index, industrial production and weekly jobless claims.
  • In Canada inflation rate for September and retail sales for August. 
  • In Europe, flash data for Euro Area consumer sentiment deteriorated. ZEW Indicator of Economic Sentiment for Germany, Euro Area construction output and current account; Germany producer prices; Italy final inflation; Spain and Switzerland balance of trade and Turkey consumer survey.
  • In the UK, BoE intervention? after Gilt sell-off reignited even after PM Liz Truss reversed course on sweeping tax cuts dismissing Kwasi Kwarteng and appointing Jeremy Hunt as new chancellor. Key updates on inflation data, retail trade, consumer morale, and public sector net borrowing.
  • In China, all eyes are on China and the start of the 20th National Congress of the Chinese Communist Party October 16, where President Xi Jinping is expected to remain for the third time as General Secretary. Chinese Q3 growth for Chinese economy in the third quarter, trade data, industrial production, retail sales.
  • In Japan inflation for September, foreign trade balance.
  • In Australia unemployment figures
  • In New Zealand consumer inflation for the third quarter and balance of trade for September.

Earnings and Events

A fresh US earnings season continues this week and may inform next steps for stocks. Eyes on more banks with Bank of America (BAC), Goldman Sachs (GS), Charles Schwab (SCHW), American Express (AXP), Barclays (BCS) and Bank of New Yok Mellon (BK). Then we have Tesla (TSLA) and Netflix (NFLX) for the punters

Big caps like Johnson & Johnson (JNJ), Lockheed Martin (LMT), Albertsons (ACI), Hasbro (HAS), Procter & Gamble (PG), Abbott Laboratories (ABT), Travelers Companies (TRV), IBM (IBM). Philip Morris International (PM), AT&T (T), Union Pacific (UNP), Dow (DOW), Tractor Supply (TSCO). Verizon (VZ)

Analysts are expecting same-quarter seasonally unadjusted earnings to be up by only about 3% y/y from about 10% in Q2 as the softening economy and higher borrowing costs bite. FactSet expects the softest earnings growth by this measure since the early days of recovery in 2020 Q3.

For Q3 2022, the estimated earnings growth rate for the S&P 500 is 2.9%. If 2.9% is the actual
growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%).
  • Monday – October 17. The four-day Oracle (ORCL) CloudWorld event begins. The Paris Motor Show will open. Model reveals from Alpine, Dacia, DS, Mercedes-Benz (OTCPK: MBGAF), Jeep (STLA), Peugeot and Renault. Chinese automakers BYD Company (OTCPK: BYDDF) and Great Wall will also participate. Vietnamese automaker Vinfast will introduce itself. Shareholders with iRobot (IRBT) will vote on the acquisition offer from Amazon (AMZN).
  • Tuesday – October 18 Shareholders with Spirit Airlines (SAVE) will vote on the acquisition offer from JetBlue Airways (JBLU).
  • Wednesday – October 19 Tesla (TSLA) will hold its earnings call
  • Thursday – October 20 WTI crude November futures expire. Western Union Company (WU) will host an investor day
  • Friday – October 21 Last day that Federal Reserve board members can make public comments before the blackout period ahead of the November meeting.

Independence – Never Take It for Granted Traders

“In aggregate, the market goes from order to disorder, and on that journey little pockets of order can form, including in commodities, bonds, stocks, currencies that circle back and reorder disorder. Then there is us the market player that reflects through order and disorder in an ever-evolving loop towards independence. It all starts with gravity and ends with equilibrium and back we go.” KnovaWave “The rules of market flux”

The Fed has kicked off its first real tightening campaign since 1994, with securities markets already at the brink of illiquidity and dislocation. Markets could soon be screaming for assurances of the Fed’s “buyer of last resort” liquidity backstop, while the Fed is prepared to begin withdrawing liquidity by selling Treasuries and MBS.

Another important aspect is the Fed doesn’t Control corporate pricing or wage decisions. Let us be clear geopolitical, climate change developments and what an out of depth, politically motivated administration are outside the Fed’s sphere of influence. There has been over $5.1 Trillion new “money” in 126 weeks, it’s a reasonable conclusion the Fed has lost control of Inflation.

Volatility

The VOLX`s underlying instrument is the Mini VIX™ Future. The CBOE Volatility Index (VIX) is an up-to-the-minute market estimate of expected volatility. The VIX is calculated using a formula to derive expected volatility by averaging the weighted prices of out-of-the-money puts and calls (options) on the S&P 500.

When the VIX is highly reactive, VIX related products can serve as potentially effective hedging tools, when the VIX is not very reactive, traditional hedging techniques may be a better choice.

Monetary inflation is running wild. In 2021 Federal Reserve Credit expanded $1.391 TN or 19% to a record $8.742 TN. The Fed’s balance sheet inflated a mindboggling $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10 times since the mortgage finance Bubble collapse.

We need to grasp all the risks to be wary off and received plenty of flak from it. We always talk here about expect the unexpected and now that is front and center, gage the market’s reaction, the market is always right and that’s why we focused on the crowd psychology aspect over the past few weeks.

“We have a market trying to interpret the Fed who is trying to find out how they can interpret their long-only portfolio at a risk parity where rates cannot rise.”

– MoneyNeverSleeps

Our weekly reminder for risk. The downside is clear with the absence of moral hazard from repeated Federal Reserve market bailouts in an environment of some would say obscene liquidity pumps. Pure greed is the other part, not wanting to miss out on fees. The obvious question is, how deeply ingrained is this attitude through the markets? How do we ween the markets off this continuous dip feed? At this point the Central Banks have kicked that answer down the road.


PART A – Stock Markets

Weekly Highlights – USA

Indices

  • S&P500 dropped 1.6% (down 24.8% y-t-d)
  • Dow recovered 1.2% (down 18.4%).
  • S&P 400 Midcaps declined 1.0% (down 21.0%)
  • Small cap Russell 2000 lost 1.2% (down 25.1%).
  • Nasdaq100 dropped 3.1% (down 34.5%).
Major US Stock Indices

US Markets YTD

  • Dow Jones Industrial Average: -18.5% YTD
  • S&P Midcap 400: -20.8% YTD
  • S&P 500: -24.8% YTD
  • Russell 2000: -24.9% YTD
  • Nasdaq Composite: -34.0% YTD

Sectors

  • Utilities fell 2.5% (up 14.4%).
  • Banks increased 0.6% (down 25.7%)
  • Broker/Dealers sank 4.3% (down 14.5%).
  • Transports increased 0.2% (down 24.1%).
  • Semiconductors sank 8.2% (down 45.2%).
  • Biotechs gained 0.5% (down 16.4%).
  • With bullion dropping $50, the HUI gold equities index fell 7.2% (down 29.1%).
11 Sector SPDRs as well as the 500 component stocks last week.

Biggest SPX Stock Winners and Losers Last Week

Major US Indices

Cboe Daily Market Statistics

Cboe Daily Market Statistics

Global Stock Market Highlights

Highlights – Europe Stocks

  • U.K.’s FTSE equities index fell 1.9% (down 7.1% y-t-d).
  • France’s CAC40 rallied 1.1% (down 17.1%).
  • German DAX equities index gained 1.3% (down 21.7%).
  • Spain’s IBEX 35 equities index increased 0.7% (down 15.3%).
  • Italy’s FTSE MIB index was little changed (down 23.5%).

Germany’s benchmark Blue Chip DAX 30 index (Deutscher Aktienindex) expanded to 40 companies on 20 September adding 10 new members to the German stock index from the MDAX which will be reduced from 60 to 50 members.

 Highlights – Asia Stocks

  • Japan’s Nikkei Equities Index was little changed (down 5.9% y-t-d).
  • South Korea’s Kospi index declined 0.9% (down 25.7%).
  • India’s Sensex equities index dipped 0.5% (down 0.6%).
  • China’s Shanghai Exchange Index rallied 1.6% (down 15.6%). 

 Highlights – Australian Stocks

  • Australia’s ASX All Ordinaries: Australia’s ASX All Ordinaries: +1.75% Friday (-0.06% for the week)
  • Follows last week’s largest weekly gain in two years.
  • On Friday the energy sector added 3.75% on surging oil prices. The utilities sector climbed 3.6 %, and consumer staples were up 2%

 Highlights – Emerging Markets Stocks 

EM equities reacted to currency valuation

  • Brazil’s Bovespa index sank 3.7% (up 6.9%)
  • Mexico’s Bolsa index slipped 0.6% (down 14.7%).
  • Turkey’s Borsa Istanbul National 100 index rose 1.7% (up 95.2%).
  • Russia’s MICEX equities index increased 0.3% (down 48.5%).

Technical Analysis

S&P 500

Daily: SPX500 performed a perfect competitive wave that started the rally at extreme fear and bear that ended with no fear. Then here we are back at the most bearish since 2009. Recall last time we rallied through the daily Tenkan to retest May’s break. The spit of the Kijun set the wave 3 or C up with power to close at the June lows. This level is now critical and is our trading Bear/Bull pivot in a high vol scenario. Watch each measured 3 wave move on the 240 & Murrey Math highlighted in the podcast. The prices pulled through the downward cloud pulled by the twist ‘helium contusion’ on the completive.

Recall the fuel from the top of the channel after completing 3 waves off ATH, accelerated after broke the Tenkan through to the 4600 OI where it reversed with impulse back to Tenkan Bulls this a (ii) of a 5. Bears this is 1-2 of (i) completive V of degree. We watch if this low was a (iii), (a) or C. We have to respect the number of alternatives of degree of 5. With such trends keep it simple resistance is Tenkan and Kijun and watch for ABC. From no fear to panic is the driving element.

For fractal purposes, SPX completed 5 waves up where it reversed with impulse with energy fueled from the power impulse down from +1/8 ATH spit of a spit fail. On the way down (just like up) it accelerated after it broke the Tenkan through the rejected Kijun and then through the median after tapping 8/8.

Daily S&P 500 3 waves

The break up was from above the 200dma. The balance from sharp reversal after the initial 3 wave down from the SPX wave 5 extension as Covid19 fed impulse accelerated under the Tenkan. From there we had seen the ABC or 1-2-3 spinning around the 61.8% of the move. Support began at the October 2019 lows. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in. A manic wave 5 or 3 of some degree was a resolution for the ages. Note the 100% extension from the emotive element and MM levels when the spit kicks in

Weekly:

The S&P 500 reversed lower spiting the weekly cloud and then we got 6 straight weekly falls. For major cycles we watch the S&P 500 over 4,231, the 50% retracement of losses from the Jan. 3 & June 16 close. Since 1950 there has never been a bear market rally that exceeded the 50% retracement & then gone on to make new cycle lows. Is this time different, as we test those June lows? We have accelerated down back to the 38% correction; do we spit the previous low. Power came from rejecting the cloud. From there back rejection at Kijun. the Tenkan as one would expect in a 3 or C, i.e impulse right to the weekly cloud is needed for cycle switching. For that you would have to break the Kijun and 50wma.

The flat weekly Kijun acted as a magnet as the Spoos blasted back up through the wave iii or C lows. Each new high evolved after testing Tenkan key support on the way and we are now getting a retest as resistance. We reiterate this needs to be recovered for a resumption of the uptrend meanwhile the bear market plays out. Watch Tenkan this week and watch for Kijun reaction. Extensions are difficult to time, keep it simple.

S&P500 Weekly Outlook

THE KEY: Key for the impulse higher was the spit or retest of MM 8/8 and Tenkan San, which held with the previous highs and Tenkan.  To repeat “We look for 3 waves down and reactions to keep it simple with the alternatives in the daily.”  Keep an eye on the put/call ratio with recognition to the sheer size of contracts AND keep in mind the stimulus distortion. The spit per channel fractal and Adams rule launched back over the cloud where we were encased AND we are back testing it. Watch if a spit or clear break support as Chikou rebalances

A reminder that Apple Inc $AAPL, Microsoft Corp $MSFT, Amazon.com Inc $AMZN, Facebook Inc $FB, and Google-parent Alphabet Inc $GOOGL make up approximately 23% of the total weight of the S&P 500. With that comes gyrations that are an outsized impact on broader markets

NASDAQ 100

Since the Nasdaq spat the weekly MM 5/8 and retested it, we have seen impulse from the median, Tenkan confluence spit to close at recent highs at the Tenkan retesting after it broke the Kijun last month and downward channel resistance. The Nasdaq is well behind the S&P pace with the weekly cloud and 50wma well above. Support the break up level and between the 38/50 Fibs.

Recall ATH was after it broke and held the weekly Tenkan to see a spit of a spit fail which is completive of 5 of some degree with Chikou rebalancing. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue.

NASDAQ Record Highs

Dow Jones

The Dow like the Nasdaq closed at the weekly Tenkan after bouncing back to test that Tenkan and Kijun after the reaction here off the weekly cloud. Support is the channel and previous breakups.

Russell 2000

The small cap Russell RUT had been developing a large flag which it did a false break to fuel the selling from there we replicated to the down (Adam’s theory). Russell 2000 low-price tested the 38.2% retracement of the move up from the March 2020 low before bouncing higher.

After some delay we broke through Tenkan and Kijun which had rejected the bounce highlighting its weakness. This is the index showing more of the fast money crowd and is trading like it. Closed right in the middle of the cloud. Needs to get traction in here for bulls. 8/8 support collapsed on the way down and is now major resistance.

Russell Index Negative Divergence to NASDAQ

Semiconductors SMH

Semiconductors SMH clean with reaction from above reverted with the retest & break of the triple top patterning in a pennant. Pull from Chip Shortage players $ON $TSM $NVDA $ASML $AMD $QCOM $AVGO $TXN $INTC $AMAT $LRCX $XLNX

VanEck Vectors Semiconductors ETF

NVidia $NVDA

NVidia’s latest slide was off another earnings week, back to lows at 4/8 after a failed breakup retest from May 2021. NVidia is a clear leader of #SOX #SMH look for cues there and ABC failures for changes. Above is the Key Break (mauve) and Tenkan to a flat cloud. Support the recent low at the 61.8% extension.

Nvidia NVDA stock chart

Apple $AAPL

One of the biggest overhangs was Apple, $AAPL dropped 8.1% this week, with most of those losses on Thursday and Friday. The selling was attributed to worries about demand for the new iPhone driven by weaker consumer demand. Apple’s problems bled over to other mega-cap names and supplier stocks, the major indices, and a plethora of funds that hold it as a core position. The Vanguard Mega-Cap Growth ETF (MGK) declined 3.4% this week, leaving it down 10.7% for the month.

Apple AAPL Stock Chart

A firm rejection at $175 at +2/8 triggered a waterfall down for Apple. On the way up Apple gently motored up to new ATH over the massive $160 then $170 thru to $180 gamma level on the way down these levels became key energy levels all the way to $132. Support held at the May break (just like NVDA) where from there it spat the cloud pulled by a flat Tenkan and Kijun as it rebalanced Chikou. It closed right at the old channel break and MM 8/8 which is now key. Remember the impact $AAPL has, at least short term on all the major indices.

ARKK ETF

The ARK Innovation ETF (ARKK) finally found some support at -1/8 and the 423.6% extension! The fund is filled with growth stocks and was the top-performing U.S. equity fund tracked by Morningstar in 2020, it has not been a pretty slide.

The ARKK ETF trading clinically, tested triangle breakdown and failed off 50 WMA. Some work at support at 61.8% of whole move and then wrecked again. Clear crowd behavior, we saw ATH in NASDAQ & SPX, yet this couldn’t raise a bid – very telling negative divergence. $ARKK rebalanced Chikou at week’s end

Ark ARKK ETF Stock Chart

US Stocks Watch

Investors (and algos) will focus on the conference calls and outlooks. Last quarter everyone expected the worse, we saw critical updates on production in coronavirus impacted regions and if there is extended halting of operations weighing on multi-nationals. 

Earnings Highlights This Week:

Monday includes

  • Bank of America (BAC), Charles Schwab (SCHW) and Bank of New York Mellon (BK)

Tuesday includes

  • Johnson & Johnson (JNJ), Lockheed Martin (LMT), Netflix (NFLX), Goldman Sachs (GS), Albertsons Companies (ACI) and Hasbro (HAS)

Wednesday includes

  • Tesla Inc. (TSLA) Abbott Laboratories (ABT) Procter & Gamble (PG), Lam Research (LRCX), ASML Holding NV (ASML), Lithia Motors (LAD), Baker Hughes (BKR), The Travelers Companies (TRV), and Winnebago Industries (WGO)

Thursday includes

  • American Airlines (AAL) AT&T (T) Union Pacific (UNP) CSX Corp. (CSX), Danaher Corp. (DHR), Dow Chemical Co. (DOW), Nucor (NUE), Ericsson (ERIC), Nokia (NOK), Philip Morris (PM), Alaska Air Group (ALK), and Tractor Supply Co. (TSCO)

Friday includes

  • Schlumberger (SLB) American Express (AXP) Autoliv (ALV), and Verizon (VZ)

IPO Wrap

US IPO Week Ahead:


Part B: Bond Markets

Inflation Matters

Inflation with Henry Kaufman

Kaufman is the legendary chief economist and head of bond market research at Salomon Brothers is someone who knows Inflation.  Henry Kaufman in an interview with Bloomberg’s Erik Schatzker Jan 14, 2022:

 “I don’t think this Federal Reserve and this leadership has the stamina to act decisively. They’ll act incrementally. In order to turn the market around to a more non-inflationary attitude, you have to shock the market. You can’t raise interest rates bit-by-bit.”

“The longer the Fed takes to tackle a high rate of inflation, the more inflationary psychology is embedded in the private sector — and the more it will have to shock the system.”

“‘It’s dangerous to use the word transitory,’ Kaufman said. ‘The minute you say transitory, it means you’re willing to tolerate some inflation.’ That, he said, undermines the Fed’s role of maintaining economic and financial stability to achieve ‘reasonable non-inflationary growth.’”

The rubber is meeting the road as the trifecta of rising interest rates, the Russian invasion of Ukraine and surging costs continues to weigh, this has been no surprise to us here and shouldn’t have been to the market and PTB. You can only play with fire for so long before you get scorched!

Food prices have reversed sharply after being almost vertical for the past year, world food prices as measured by the FAO Food Price Index fell for the fifth consecutive month in August. The index was down 2.7 points (1.9%) from July, however remained 10.1 points (7.9%) above its value a year ago. At 138.0 the index is well under the record high 159.7 from March. Price falls were seen in all the five sub-indices of the FFPI in August, with monthly percentage declines ranging from 1.4 percent for cereals to 3.3 percent for vegetable oils.

With all the redirection of blame at the Fed about inflation one has to understand it is a global phenomenon outside the Fed’s Control. With the war drums louder than ever the supply chain issues are out of control. The Federal Reserve is not in control of global energy and commodities prices.

Everything points to powerful inflationary dynamics and a Federal Reserve so far “behind the curve.”

Highlights – Treasuries

“This is shaping up to be the most volatile year for Treasuries in over a decade, as uncertainty about the impact of aggressive Federal Reserve tightening whipsaws yields. The yield on 10-year US notes has traded in a range of at least 10 bps in 50 of 95 trading days so far in 2022. That puts it on track for an annual rate of more than 130 episodes, which would be the highest since 2009.”

May 18 – Bloomberg (Garfield Reynolds)

Investment-grade bond funds posted outflows of $4.359 billion, and junk bond funds reported negative flows of $713 million (from Lipper).

U.S. Treasuries volatility soared seeing them end near lows. The pullback in Treasuries lifted yields on the 2-yr note and the 30-yr bond toward their highs from Thursday while other tenors found support a bit above those lows. Reuters reported that the U.S. Treasury asked primary dealers if some government debt should be bought back to improve market liquidity just days after Treasury Secretary Yellen offered reassurance that she is not seeing anything in markets that makes her concerned. This week’s action put additional pressure on the 2s10s spread, compressing it by seven basis points to -49 bps.

Bond Auctions

Yield Watch

  • 2-yr: +5 bps to 4.50% (+20 bps for the week)
  • 3-yr: +3 bps to 4.49% (+16 bps for the week)
  • 5-yr: +6 bps to 4.27% (+13 bps for the week)
  • 10-yr: +6 bps to 4.01% (+13 bps for the week)
  • 30-yr: +5 bps to 3.98% (+14 bps for the week)

“Government bond prices around the world are moving in tandem, reducing investors’ ability to diversify their portfolios and raising concerns of being blindsided by market gyrations. Correlations between currency-adjusted returns on the government debt of countries such as the U.S., Japan, the U.K. and Germany are at their highest level in at least seven years, data from MSCI showed, as central banks around the world ramp up their fight against inflation.”

October 10 – Reuters (Davide Barbuscia)

Key Rates and Spreads

Rates

  • 10-year Treasury bonds 4.02%, up +0.13 w/w (1-yr range: 1.08-4.02) (12 year high)
  • Credit spread 2.23%, up +0.13 w/w (1-yr range: 1.65-4.31)
  • BAA corporate bond index 6.25%, up +0.26 w/w (1-yr range: 3.13-6.25) (10 year+ high)
  • 30-Year conventional mortgage rate 7.10%, down -0.02% w/w (2.75-7.14) (new 10 year high intraweek)
Mortgage News Daily September 28, 2022

Yield Curve

  • 10-year minus 2-year: -0.49%, up +0.06% w/w (-0.52 – 1.59)
  • 10-year minus 3-month: +0.30%, down -0.21% w/w (0.04 – 2.04)
  • 2-year minus Fed funds: +1.43%, up +0.23% w/w

Instability is pronounced, credit defaults are on track to rise in North America, Europe, Asia, and Australia, according to a survey by the International Association of Credit Portfolio Managers. The economic slump is likely to occur later this year or in 2023, according to the survey.

Highlights – Mortgage Market

  • Freddie Mac 30-year fixed mortgage rates surged 26 bps to 6.92% (up 387bps y-o-y) – the high since April 2002.
  • Fifteen-year rates jumped 19 bps to 6.09% (up 379bps) – the high since July 2008.
  • Five-year hybrid ARM rates spiked 45 bps to 5.81% (up 326bps) – the high since December 2008.
  • Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 12 bps to 7.17% (up 396bps) – the high since December 2008.

Highlights – Federal Reserve

  • Federal Reserve Credit slipped $3.4bn last week to $8.725 TN.
  • Fed Credit was down $176bn from the June 22nd peak. Over the past 161 weeks, Fed Credit expanded $4.998 TN, or 134%.
  • Fed Credit inflated $5.914 Trillion, or 210%, over the past 518 weeks.
  • Fed holdings for foreign owners of Treasury, Agency Debt last week were little changed at $3.325 TN – near the low since April 2020.
  • “Custody holdings” were down $158bn, or 4.5%, y-o-y.
  • Total money market fund assets gained $10.3bn to $4.588 TN.
  • Total money funds were up $64bn, or 1.4%, y-o-y.
  • Total Commercial Paper expanded $12.1bn to $1.256 TN. CP was up $83bn, or 7.1%, over the past year.

Highlights – European Bonds

  • Greek 10-year yields slipped two bps to 4.81% (up 350bps).
  • Italian yields surged 19 bps to 4.71% (up 353bps). Italian 10-year yields rose nine to 4.79%, closing the week at the highest yield since 2012.
  • Spain’s 10-year yields rose 12 bps to 3.41% (up 285bps).
  • German bund yields gained nine bps to 2.19% (up 237bps).
  • French yields increased eight bps to 2.80% (up 260bps).
  • The French to German 10-year bond spread narrowed about one to 61 bps.
  • U.K. 10-year gilt yields jumped 15 bps to 4.24% (up 327bps).

Highlights – EM Bond Yields Surged

  • 128 bps in Colombia (14.36%),
  • 74 bps in Hungary (10.66%),
  • 54 bps in Romania (9.05%),
  • 38 bps in Czech Republic (5.48%),
  • 37 bps in Poland (7.69%).
  • Yields were up 19 bps in both Mexico (9.83%) and South Africa (11.27%).

Highlights – Asian Bonds

  • Japanese 10-year “JGB” yields added a basis point to 0.25% (up 18bps y-t-d). At the BOJ’s 25 bps ceiling, while the yen sank another 2.3% (down 22.6% y-t-d) to 30-year lows. 

Federal Reserve Gives All Banks a Pass in Annual Bank Stress Test

The Federal Reserve released its annual bank stress test after the market last quarter. All 34 large banks tested remained well above their risk-based minimum capital requirements, and the Fed announced no restrictions relating to dividends and buybacks. With the dismal state of the economy through soaring inflation and record low consumer sentiment these tests were keenly watched. Banks suffered slightly more hypothetical losses in the 2022 severe test than last year, posting $612 billion in projected losses as capital ratios fell to 9.7%. Read More Here.


Part C: Commodities

“Commodity markets are struggling to shake their months-long liquidity crisis that’s brought an era of erratic swings in the value of the world’s raw materials. The giant price fluctuations that followed Russia’s invasion of Ukraine roiled markets for everything from natural gas to crude oil and metals. Trading activity in most raw material markets has sunk to low levels. Open interest in oil last week hit the lowest since 2015, while natural gas, sugar and aluminum futures holdings all remain at or near the lowest levels in years. In out-of-control power and gas markets, spiking prices are limiting the number of contracts traders can hold because of surging collateral requirements. In oil, macro investors have pulled bets on raw materials as an inflation hedge after central banks began hiking rates. All the while, some traders have turned their backs on the London Metal Exchange after the crisis in nickel trading earlier this year.”

September 13 – Bloomberg (Alex Longley and Yongchang Chin)

Highlights

  • Bloomberg Commodities Index fell 3.0% (up 14.6% y-t-d).
  • Spot Gold dropped 3.0% to $1,644 (down 10.1%).
  • Silver sank 9.2% to $18.28 (down 21.6%).
  • WTI crude retreated $7.03 to $85.61 (up 14%).
  • Gasoline fell 3.8% (up 18%),
  • Natural Gas dropped 4.4% to $6.45 (up 73%).
  • Copper recovered 1.1% (down 23%).
  • Wheat declined 2.3% (up 12%),
  • Corn added 1.0% (up 16%).
  • Bitcoin lost $360, or 1.9%, this week to $19,200 (down 58.6%).
Weekend October 14, 2022

Risk markets continue to respond to the war in Ukraine and the supply crisis from the Coronavirus outbreak and lockdowns.

BDI Freight Index

  • The Baltic Exchange’s dry bulk sea freight index on Friday, edged up to snap a six-session losing streak. The BDI posted its worst week since late August on sombre demand for all its vessel segments. The overall index, which factors in rates for capesize, panamax and supramax shipping vessels, was down 6.3% for the week, its worst since late August.
  • Th capesize index also snapped a six-session declining streak and rose 72 points, or 3.4%, to 2,166. It was down 9.6% for the week.
  • Average daily earnings for capesizes which typically transport 150,000-tonne cargoes such as coal and steel-making ingredient iron ore used in construction, were up $600 to $17,965.
  • The panamax index lost 7 points, or 0.3%, to 2,081 and marked a weekly fall of about 7%.
  • Average daily earnings for panamaxes which usually carry coal or grain cargoes of about 60,000 to 70,000 tonnes, dropped $67 to $18,729.
  • The supramax index (.BSIS) was down 6 points at 1,690.
Baltic Dry Index Weekly

Aluminum (Alcoa)

We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle.

We have seen $AA retest the previous high after the +3 Spit as the Chikou rebalanced. We have the Gap below at +1/8 confluence. We move to 240 for this pennant resolution.

Alcoa

Copper

Copper rebounded sharply off the 50wma but again has failed on the cloud spit and channel break. The flattening Weekly Tenkan and Kijun acted as a magnet to close right there. #HG power spits have quickly rebalanced back into the wide channel. Copper had been a leader in the risk on movement for commodities.

Weekly Copper Outlook
Copper Supply Crunch

Lumber

Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns.

Lumber futures for July delivery ended Friday at $695.10 per thousand board feet, down 52% from a high in early March. On-the-spot wood prices have plunged, too. Pricing service Random Lengths said Friday that its framing composite index, which tracks cash sales, fell about 12% last week to end at $794. That is down from $1,334 in March, just before the Federal Reserve raised interest rates for the first time since 2018.

Lumber Futures

Grains

USDA September WASDE Report

Wheat

KnovaWave analyze US Wheat futures given its high beta relationship and more liquid aspect as an investment vehicle.

Wheat bounced between the 50 and 61.8% Fibs. Drawn higher by the flat weekly cloud and supported by 0/8 which held. It closed over the 50wma after holding the 61.8%. The contract stabilized after it continued its sharp impulsive collapse fueled from when it retested and broke the Tenkan (orange). This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall. From here Wheat support at that $700 cloud confluence with the breakup level at 61.8% resistance, then Kijun and Tenkan.

Wheat ETF WEAT

Full Report:

Corn

Corn replicated last week’s price action as it recovered from its freefall it has worked its way up spitting off Kijun at the 7/8 and holding the top of the weekly cloud after Tenkan and 50wma was recaptured. Earlier in the year Corn had topped out at the highest since 2012 in Chicago at +1/8 and corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021. From here we saw Tenkan fail again, and empowered selling smashed through previous high, Kijun and 7/8 confluence. The 50wma gave no support with the cloud and 6/8 slowing the selling down. All these levels are now significant.

Corn Futures Outlook

Full Report:

Soybeans

Soybeans rejected the 50 wma to close near the lows for the week after it was rejected harshly at the Tenkan, under the Kijun finding support at 6/8. Rejection at the Cloud base, and we sit near the January breakup. The weekly cloud and Murray mingle around the $14.6/bushel benchmark are massive.

Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.

Soybeans Weekly Outlook

Full Report:

Energy

US Crude Oil (WTI)

Daily:

Measuring oil MM recalculation higher to almost +2/8 and 161.8% Fib retest. We are in a completive mode with this impulse, it’s a question of degree on the topside, use the Murrey math 240/60 grid. From there down in 3 waves, completing a C or IV? Support wasn’t found until 0-8. Support is previous lows and Tenkan. Resistance Kijun and 50dma which it needs close above for a rally to get legs.

WTI Daily KnovaWave

Weekly: WTI crude Oil futures traded over $94bbl after reversing off last Tuesdays $86.53Bbl, the lowest settle since January 25, it closed the week above the 50wma. That was after it’s measured move reversed from 7-year highs and regained them right to the top of the weekly channel with the downside open. Risk support is the grid. Long term 61.8% target fueled the spit of a spit by ABC bull flag after rebalanced Chikou sated the 5 waves. Resistance Weekly Tenkan & Kijun and Murrey Math levels and previous breaks (off monthly)

The key is crowd behavior to help tell the story which in energy is often around geopolitics. A great example of why we watch ABC corrections and from here we get the energy from the break being balanced. This move that was powered by 50 dma Tenkan spit of a spit – hence the fractal energies reverberations.

WTI Weekly KnovaWave Shape

These are special times, recall “After we regained the pattern 261.8% from the extreme (-$40) move. The climax of the larger acceleration lower after broke the weekly uptrend, a fractal of the sharp and all the way to all-time lows to negative pricing we have seen mirror replications.” Support is previous channels, tenkan and Kijun. Above we have Murrey Math time and price 

Oil Price Recovery

US Natural Gas (Henry Hub)

Daily:

US Natural Gas has continued higher after it completed 3 waves correcting the daily 8/8 spit correction to -2/8. Two clear alternatives, we are correcting the highs 5 or that was a 3 and we go higher. We closed over the 2 most recent highs and +1/8 right. Support is Tenkan, Kijun below.

The Cloud top broke Kijun and Tenkan with a kiss of life. Meaning that 3 was either an a i or iv– impulse in a nutshell. Prior to this move the adjunct failure of the 50dma and Tenkan opened up the retest of 3.80-3.60 last time which fueled this week’s move higher. From there we fell sharply to the Kijun, A completion of 4 (bear) or (i) of 5 (bull) which gave this move sustenance

Notice the fractals of the move after completing the C of 4 bullish scenario played out the consolidation phase since it completed its IV (Bull Case) last year since then a series of 3 waves. For the bulls all this needs to hold for the highs to be a (iii) looking at possibilities we have the 161.8% at 7.026 if we get ‘silly’ 50dma support.

US Natural Gas KnovaWave Daily Grid

Like the larger wave on the way up it accelerated through previous highs (flat topped triangle energy) and over the resistance at 8/8 and new highs. We successfully tested that break in a pennant ABC. Previous highs (flat topped triangle energy) and 8/8 and new highs underscore the structure that fed the move and is key longer term.

Weekly

Notably no sharp reversal, like the previous impulsive spikes. We saw a clean break of the Kijun to close back over near highs. This move was fueled by a fractal of the classic double top playing out after a spit of the weekly Kijun was sent back off Tenkan only to reverse all the way to spit the 50wma for the energy needed. Resistance is Previous highs and Murrey Grid.

The Natural gas rebalanced after continued to fail and retrace with impulse after reaching its major target, the double top potential from 2014 which equated nicely to over 8/8 Weekly and showed true impulse off that to rebalance Chikou. It’s now a question of degree, 3 or 5? Impulse just shy of the 8/8 and Tenkan confluence. A question of continuation with the 50wma as resistance and cloud as support.

US Natural Gas KnovaWave Weekly Grid

Key Energy Reports

Precious Metals

  • Gold dropped 3.0% to $1,644 (down 10.1%).
  • Silver sank 9.2% to $18.28 (down 21.6%). 

Gold

Gold futures back testing the median after another rejection at the Tenkan (orange). Needs gets impulse off this ABC off this cloud or double top gains more weight and it follows silver weakness The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at it’s uptrend line since the August 2021 bottom and Kijun. It garnered strength after rebalancing after manic rise to +5/8 weekly rebalance of Chikou in 5 waves. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.

Gold Weekly
Gold in Perspective

Silver

Silver, like Gold bounced under the cloud base. Back underr 50wma after spitting Tenkan providing support after reversed. Closing under weekly Kijun which is now resistance. Major support is previous lows

Silver Weekly Outlook

Part D: Forex Markets

John Maynard Keynes, 1920: “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in a million is able to diagnose.”

Highlights

  • For the week, the U.S. Dollar Index added 0.5% to 113.31 (up 18.4% y-t-d).
  • For the week on the upside, the British pound increased 0.8%, the Singapore dollar 0.4% and the Norwegian krone 0.3%.
  • On the downside, the Australian dollar declined 2.8%, the Japanese yen 2.3%, the Brazilian real 2.3%, the South African rand 1.4%, the South Korean won 1.1%, the Swiss franc 1.1%, the Canadian dollar 1.1%, the New Zealand dollar 0.9%, the Swedish krona 0.9%, the euro 0.2% and the Mexican peso 0.2%. The Chinese (onshore) renminbi declined 1.06% versus the dollar (down 11.63% y-t-d).
Weekend October 7, 2022

Australian Dollar – AUDUSD

For the week AUDUSD closed down 0.22%

The Aussie dollar has reversed off an eight-week high, trading over US71¢ with the revitalized hawkish Fed. The Reserve Bank of Australia has hammered on stagnant wage growth as a problem within the Australian economy. In June, the government raised the minimum wage by 5.2%. This week, the Federal government will host a jobs summit and a number of parties have already started media campaigns to push the case for further significant wage increases. Keep an eye on the effect on bonds and the dollar here.

To reflect potential upside, we look at the way down AUDUSD with cloud, Kijun and channel confluence over $0.7250 it reversed lower to 4/8 just over .66. This week we closed under the Tenkan around the channel midpoint. Since completing a 5 at the psychological 80 level it had fallen & corrected under the weekly cloud in emotive fashion

China lockdown fears overhang and AUDUSD forwards support with bonds and RBA raising. Support is the Murrey Math Levels. Resistance the Cloud and Kijun like many commodities. It was the strongest major currency against the USD in July after the Yen correction and has continued in that fashion.

Australian Dollar KnovaWave Weekly Outlook

New Zealand Dollar – NZDUSD

For the week NZDUSD closed down 0.6%

The Kiwi outran the Aussie lower this week after it mirrored the AUD spitting the lower channel wing to recover through Tenkan after momentum failed and reversed from there. Kijun resistance, which is pivotal is a long way off. We closed back over the old 61.8% break. The RBNZ Policy Announcement has had 7 consecutive rate hikes which has been supporting the forwards..

Canadian Dollar – USDCAD

For the week USDCAD closed up 0.3%

The USDCAD touched 1.3300 a 22-month high. both were expected to pause around 4% but now Fed funds are pricing in 4.40% in March. That’s creating a central bank divergence and cleared the way for a break above 1.32 in USD/CAD. I continue to think the destination is 1.37. while the liquidity zone below 1.3100 could limit upside price action. The high of 1.3223 on July 15 is back in focus. That was the highest level since November 2020. It has recaptured the Tenkan led by the AUD and NZD as it spat the weekly flat-topped triangle. Watch flat Kijun and Tenkan.

Use Fibs for support and resistance. Eyes are on Canadian CPI, the recent decline in energy prices should help alleviate some of the broader pricing pressures. The BoC have been quiet since their 100bp hike in July after it was accompanied with the removal of language about acting in a “forceful” manner, but it did signal rate hikes are to continue with the path being decided by its ongoing assessment of the economy and inflation

New Zealand Dollar KnovaWave Weekly Outlook

Euro – EURUSD

For the week EURUSD closed down 0.75%

The Euro back tested the 1/8 after its first sweep of parity with the sharp selloff fueled reversal off last month’s correction off the Tenkan which was fast and furious to the lowest closing rate since 2017 spitting the outer channel. Euro continues to cascade in what seems like eternal flags in the channel as it spits the Tenkan. We watch if Kijun (pink) reflecting Tenkan (orange) creates any impulse as EURUSD develops in the channel. Watch 3 waves to see development for continuation. Again, governed by EURGBP and Bund volatility

Euro KnovaWave Weekly Outlook

British Pound – GBPUSD

For the week GBPUSD closed up 0.5%

For the week GBPUSD closed down 0.77%

It is still hectic for Sterling; it is down to a new leader between Rishi Sukan and Liz Truss with Truss the favorite. GBPUSD structure leaves the recent 1.1718 low vulnerable. British pound continues to have difficulty since it’s vicious move down in July that reversed to unchanged by the end of the month.

Cable lost all of the steam from its biggest weekly gain since December 2020 against the dollar to above $1.26 to be smashed to the bottom channel under 1/8 and 1.1800 after retesting the channel and Tenkan. It is still undermined by political risk and recession fears. Above we have channel and Tenkan confluence and flattening Kijun. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.

British Pound KnovaWave Weekly Outlook

Euro Pound – EURGBP

For the week EURGBP closed down 0.27%

EURGBP has been in the doldrums since it back tested 50wma after breaking it early. 50wma and cloud proved too much and EURGBP failed under Kijun support with Tenkan resistance. The EUR/GBP gave up control.

Euro v British Pound KnovaWave Weekly Outlook

Japanese Yen – USDJPY

For the week USDJPY closed up 0.53%

Last month USDJPY corrected to the weekly Tenkan at 125.88 which held and fueled a swift return higher and has rallied dramatically. Dollar yen accelerated higher moving above the May high of 131.342 which was 20-year highs for the USDJPY. It didn’t let up with Murray Math Weekly levels recalculating higher. USDJPY closed at 135.75 last month, traded to almost 140 where it spat 8/8 and reversed lower, it is trading at 133.32 today. The last two trading days of the month saw the reversal from positive to negative and traded at the low for the month on the last day of the month to close at the weekly Tenkan.

On the way up the price accelerated after the close above the Tenkan over 114 hence the pull for it to correct to the Tenkan which it did to ignite this rally a month ago. The Murrey Math level should remain massive support for dollar-yen. Any change will come from the weekly Kijun as it breaks through the old channel.

Use your USDJPY Murrey grid for now. EURJPY AUDJPY will determine risk on/off. The Tenkan is the natural balance of support ahead.

Japanese Yen v Dollar KnovaWave Weekly Outlook

Emerging Market Currencies

For the week USDMXN closed  down 0.67%

The Mexican Peso held its triple bottom to rally back to the Tenkan as rates rose in the US. It continues in the long sideways pattern and consolidates despite outside uncertainty from oil and high rates. The recent high near 19.5 per USD was the highest level since March of 2020 and tracked general strength in Latin American currencies which has since reversed. Use the Gann octave and the extension fibs to help measure the noise.

Mexican Peso KnovaWave Weekly Outlook

Turkish Lire USDTRY

For the week USDTRY closed up 0.52%

The Turkish Lira slow decline continues as it rides the median in the corrective channel tier spitting 17 against the dollar. We are still in spitting distance of that all-time low of 18.4 hit in December. The Turkish Central Bank is expected to maintain its Weekly Repo Rate at 14.00% at its upcoming meeting. Turkey’s recent monetary policy decisions have not been based on economic fundamentals, with late 2021 seeing a cumulative 500bps cut in rates in a matter of months to current levels.

The background is the same with President Recep Tayyip Erdoğan vowing to cut interest rates despite spiraling inflation. In December last year, the Turkish Central Bank introduced a “Lira deposit scheme” to stem the decline in the currency. The Turkish president said that the country had ‘wasted years’ with the misguided view that prices should be controlled by using higher borrowing costs to suppress consumption. Such policies, he said, benefited only ‘those living a charmed existence and filling their pockets with [the proceeds of] high interest’, including foreign investors.”

To recap the wild 18-10 USDTRY swing last year reversed after falling in 3 waves to explode over the Tenkan, weekly cloud Kijun and 50wma below. The Murrey Math and Fib targets with last year’s Lire all-time lows in a hyper inflating collapse. So far this year the lira is the worst performer in emerging markets, raising concerns that the country could be heading for a repeat of the FX crisis seen at the end of last year.

Turkish Lire KnovaWave Daily Outlook

Bitcoin

Bitcoin continues to perform technically to perfection. Impulse begets impulse. To understand panic, understand greed. $BTC tested the top of a rising channel after the preceding sharp downturn which was the downside breakout of an earlier bearish flag, after breaking downside a H&S top and then down it went….

Recall Bitcoin exploded higher following it’s correction impulsively upon completing 5 waves up at +2/8. Each Tenkan and Kijun tap saw an explosive kiss of death until we completed 3 waves to around 28,000. From there we have seen extreme volatility.

Looking back Bitcoin put in a high of $63,000 around Coinbase, the largest US crypto exchange successfully went public which signaled profit-taking. The recent high over $68,000 came after the launch over the Bitcoin ETF, Bitcon. From that high we have 2 main alternatives a V of a 1 of a V. For bears it a completive five with impulse right to the 50wma – an incredible 26% fall in a Friday night session. That’s impulse! We watch for an ABC to develop here support is the 50wma and bottom of the weekend cloud.

Bitcoin KnovaWave Weekly Outlook
Bitcoin Mania in Perspective

The Fail of TerraUSD

May 12 – Wall Street Journal (Alexander Osipovich and Caitlin Ostroff): “The cryptocurrency TerraUSD had one job: Maintain its value at $1 per coin. Since it launched in 2020, it had mostly done that, rarely straying more than a fraction of a penny from its intended price. That made it an island of stability, a place where traders and investors could stash their funds in between forays into the otherwise frenzied crypto market. This week TerraUSD became part of the frenzy too, slumping by more than a third on Monday and then tumbling as low as 23 cents on Wednesday. The collapse saddled investors with billions of dollars in losses. It ricocheted back into other cryptocurrencies…”

May 16 – Financial Times (Scott Chipolina): “Traders have yanked $7bn from Tether since the world’s biggest stablecoin last week briefly lost its peg against the US dollar, intensifying concerns about the assets that underpin the global cryptocurrency market. Tether’s market value has fallen by 9% since May 12 to $76bn as tokens have been removed from circulation to meet redemption requests, CryptoCompare data show. The decline came after Tether last Thursday traded at about 95 cents, well below the $1 level it seeks to maintain following the failure of a smaller rival. Observers inside and outside the crypto market have warned that deeper or more lasting volatility in stablecoins, which are designed to maintain a one-to-one peg with the dollar, could drag down the value of thousands of speculative crypto assets that have drawn buyers around the world.”

We have seen what you would expect from a 5 wave impulse peak and ABC correction, a violent correction and completion. Use Murrey Math levels for corrections and targets as algorithms control the herd here, support is the cloud and sharp ABC, 1-2 moves. From there prices agitated towards those ATHs as news of a Bitcoin ETF fueled the rally, sound familiar? But this time it wasn’t signaling we are in a 3 high probability but a 5.

On the Risk Radar

Fed Warnings on Possible Medium To Long Term Risks

 Geopolitical Tinderbox Radar

Turkey Geopolitical
Turkey Risk Monitor

Economic and Geopolitical Watch

Banks

Major banks kicking off earnings this quarter, including BlackRock (BLK), Citigroup (C), First Republic Bank (FRC), JPMorgan Chase (JPM) and Wells Fargo (WFC).

Earnings expectations for the banks on the S&P500

Major US Banks Deliver Mixed Results in Q3, 2022

The major money cents banks released earnings with many strong results for Q3. Mainly from the interest rate spreads on the positive side. We see a reversal of loss reserve releases from the pandemic kitty as the economy slides into recession.

Banks are benefiting from the Federal Deposit Insurance Commission intending to ease the Volcker Rule, which restricts banks from making large investments into venture capital. The Volcker Rule was enacted in the wake of the 2008 financial crisis, and the new changes could potentially free up billions in bank capital.

Akio Morita mistakes

The Week Ahead – Have a Trading Plan

Watch Central Banker and Geopolitics speeches, reports and rate moves. 

Global Watch

Next Week’s Risk Dashboard via Scotiabank

US Events Focus

  • Monday: October Empire State Manufacturing survey (prior -1.5) at 8:30 ET
  • Tuesday: September Industrial Production (prior -0.2%) and Capacity Utilization (prior 80.0%) at 9:15 ET; October NAHB Housing Market Index (prior 46) at 10:00 ET; and August Net Long-Term TIC Flows (prior $21.40 bln) at 16:00 ET
  • Wednesday: Weekly MBA Mortgage Index (prior -2.0%) at 7:00 ET; September Housing Starts (prior 1.575 mln) and Building Permits (prior 1.517 mln) at 8:30 ET; weekly crude oil inventories (prior +9.88 mln) at 10:30 ET; $12 bln 20-yr Treasury bond reopening results at 13:00 ET; and October Fed Beige Book at 14:00 ET
  • Thursday: Weekly Initial Claims (prior 228,000), Continuing Claims (prior 1.368 mln), and October Philadelphia Fed survey (prior -9.9) at 8:30 ET; September Leading Indicators (prior -0.3%) and September Existing Home Sales (prior -0.3%) at 10:00 ET; and weekly natural gas inventories (prior +125 bcf) at 10:30 ET
  • Friday: Nothing of note

Global Central Bank Events


Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2022.

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