May 15- 21, 2022
FEAR NOT Brave Investors
Where have we been and where are we going? Join our weekly market thread on Traders Community…
The Week That Was – What Lies Ahead?
Click on the links below to navigate to the relevant section.
- Part A: Stock markets
- Part B: Bonds
- Fed and Banks
- Part C: Commodities
- Energy – Oil and Gas
- Gold and Silver
- Part D: Foreign Exchange
- Geopolitics and Economics
- Economy Week ahead
Friday gave us a relief rally with short covering after a heavy week of selling. The S&P 500 rallied 2.4% on Friday, bouncing from an oversold condition and closing back above the psychological 4,000 level. The Nasdaq Composite (+3.8%), Russell 2000 (+3.1%) and thw Dow Jones Industrial Average rose 1.5%. WTI crude futures rose 3.7%, or $3.92, to $110.32/bbl to close the week. Fear gave up to greed quickly with a 9% decline in the CBOE Volatility Index (28.87, -2.80, -9.1%).
Selling interest in Treasuries pushed yields higher: the 2-yr yield rose eight basis points to 2.59%, and the 10-yr yield rose 12 basis points to 2.94%. We say hot CPI and PPI inflation releases this week and both Fed Chair Powell and Cleveland Fed President Mester (FOMC voter) both reiterated support for 50-basis-point rate hikes in the next two meetings after seeing the inflation data.
- 10 year minus 2 year: +0.35%, down -0.05 w/w (1-yr range -0.12 – 1.59)
- 10 year minus 3 month: +1.95%, down -0.32% w/w (1-yr range -0.99 – 2.04)
- 2 year minus Fed funds: +1.86%, down -0.54% w/w
- 30-Year conventional mortgage rate 5.38%, down -0.26% w/w (1-yr range 2.75-5.64)
- High-yield CDS traded to 500 bps this week for the first time since July 2020, with junk spreads (to Treasuries) the widest since November 2020.
- The iShares High Yield Corporate Bond ETF (HYG) has declined 1.81% so far this month, while the iShares Investment Grade Corporate Bond ETF (LQD) is down only 0.62%.
For the week ahead we get earnings from the big retailers and after last week’s big inflation reports we get to hear from a Mega Hawk, St. Louis Federal Reserve President James Bullard’s comments on inflation. Bullard is intent on trying to break the cycle of inflation and that the Fed must act decisively. Among retailers reporting we have, Weber, Home Depot, Walmart, Lowe’s, Target Kohl’s and Deere. For tech we have two big ones Cisco and Palo Alto Networks
When Risk Explodes:
The fed funds futures market, according to the CME’s FedWatch Tool, has placed a 78.6% probability to a 75-basis point rate hike at the June FOMC meeting versus 82.9% yesterday.
Oil prices have continued to push higher since US continues to drain it’s SPR which have not alleviated product shortages and the headline risk around the EU phasing out Russian oil by year end. The EIA reported distillates stocks are at 14yr low as demand for jet fuel and diesel take off. Padd 1 diesel inventories are at 25-year lows.
The rubber is meeting the road as the trifecta of rising interest rates, the Russian invasion of Ukraine and surging costs continues to weigh on the markets, 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!
This down move has been like a slow train coming. We saw most of the major banks getting cracked after reports three weeks ago, including Goldman Sachs Morgan Stanley and four of the largest U.S. lenders Wells Fargo, Citigroup and PNC reporting double-digit drops in first quarter profit. From an 11% decline at Morgan Stanley to a 46% drop at Citigroup.
Oops: A fun fact is April was historically the best month for stocks from a seasonality perspective, can the ongoing market volatility and headwinds fall into place again?
Next up more inflation numbers:
Food prices are surging, with that expect to see even higher grocery store and energy bills as elevated commodity prices send the fallout from Ukraine’s humanitarian crisis rippling across the world in the coming weeks. 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.
In the US, CPI report is expected to show the annual inflation rate eased to 8.1% from a 41-year high of 8.5% in March while the core rate is seen falling to 6% from 6.5%. Still well above the Fed’s 2% target as supply disruptions persist and energy prices remain elevated. We will get another rash of speeches from Fed officials. Other releases are producer prices, consumer inflation expectations and the NFIB Business Optimism Index.
Globally we get a Mexico CPI reading with a monetary policy decision, and the Brazil inflation rate. Elsewhere in Europe, Germany final inflation figures and Russian consumer price index. Russia annual inflation accelerated to 17.73% as of April 29th, the highest since 2002 and up from 17.70% a week earlier. On a weekly basis, consumer prices increased 0.21%, easing from 0.25% a week earlier after the central bank cut interest rates.
In China, an inflation rate is seen hitting 1.9% in April, a rate much below other major economies as persistent lockdown and social distancing measures hurt demand. In India, there will also be inflation data with consumer prices are seen rising a much faster 7.5% in April.
Everything points to powerful inflationary dynamics and a Federal Reserve so far “behind the curve.”
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. This when Federal Reserve Credit last week added $2.0bn to a record $8.918 TN. Over the past 137 weeks, Fed Credit expanded $5.192 TN, or 139%.
Here is a dose of reality. or was it all just money laundering?
“The nonfungible token of Jack Dorsey’s first tweet, which sold for $2.9 million last year to Sina Estavi, failed to garner much in the way of interest when it was recently put up for resale, Coindesk reports. The auction for the NFT closed with only seven offers ranging from just 0.0019 Ether to 0.09 ETH, or about $6 to about $280. A far cry from the $48 million sought by the owner.”April 13 – Bloomberg (Patrick McHale)
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.
Rate markets are sending an exhaustive message to the Fed that it should commence aggressive tightening measures. On the flip side is a sputtering overly extended equities bubbles they must handle with kid’s gloves.
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 are in an openly hawkish phase since late last year when the New York Fed president John Williams, who is a voting member continued with his hawkish tilt of late. He said we are seeing broader based increases in inflation. Fed Governor Bullard told US Core PCE Is “Quite High” and added that the Fed should take towards a more hawkish policy in the next couple of meetings. Then we had Fed Governor Christopher Waller say the rapid improving job market and deteriorating inflation data have pushed him towards favoring a faster pace of tapering and more rapid removal of accommodation.
“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, timely given the V shape surge in commodities just a week. 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.
We apologize members of the team were away at a conference this weekend, so we have not been able to update the charts and week that was and ahead. The long-term charts hold largely the same. We will update and walk through during the Market Wrap Podcast through the week.
Note charts and Data Below from Last Week’s weekly Bulletin.
PART A – Stock Markets
Highlights – USA
- S&P500 declined 2.4% (down 15.6% y-t-d)
- Dow fell 2.1% (down 11.4%).
- Nasdaq100 fell 2.4% (down 24.1%).
- S&P 400 Midcaps slumped 2.0% (down 14.5%),
- Small cap Russell 2000 dropped 2.5% (down 20.2%).
- Utilities declined 1.5% (down 1.9%).
- Transports lost 3.0% (down 12.3%).
- Semiconductors slipped 0.4% (down 24.7%).
- Biotechs dipped 0.2% (down 18.1%).
- With bullion down $72, the HUI gold index sank 9.7% (down 4.4%).
- Banks sank 4.6% (down 18.8%)
- Broker/Dealers dipped 1.4% (down 18.0%).
US Markets YTD
- Nasdaq Composite -22.4% YTD
- Russell 2000 -18.1% YTD
- S&P 500 -13.5% YTD
- Dow Jones Industrial Average -9.5% YTD
Highlights – Europe Stocks
- U.K.’s FTSE equities index increased 0.4% (up 0.5% y-t-d).
- France’s CAC40 rallied 1.7% (down 11.0%).
- German DAX equities index recovered 2.6% (down 11.7%).
- Spain’s IBEX 35 equities index increased 0.2% (down 4.3%).
- Italy’s FTSE MIB index rallied 2.4% (down 12.1%).
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 declined 2.1% (down 8.2% y-t-d).
- South Korea’s Kospi index fell 1.5% (down 12.5%).
- India’s Sensex equities index sank 3.7% (down 9.4%).
- China’s Shanghai Exchange Index rallied 2.8% (down 15.3%).
Highlights – Australian Stocks
- Australia’s ASX200 closed down 1.8% for the week
- Iron ore had its biggest weekly drop since mid-February as China’s spreading virus restrictions and worsening property crisis hit demand and sent the materials sector 4% lower for the week.
Highlights – Emerging Markets Stocks
EM equities were mixed.
- Brazil’s Bovespa index gained 1.7% (up 2.0%),
- Mexico’s Bolsa index was little changed (down 6.9%).
- Turkey’s Borsa Istanbul National 100 index lost 1.6% (up 30.2%).
- Russia’s MICEX equities index slumped 3.6% (down 39.1%).
Biggest SPX Stock Winners and Losers Last Week
Technical Analysis of key markets via KnovaWave
Daily: SPX500 performed a perfect double bottom this week’s and by week’s end had completed a perfect measured 3 wave move on the 240 Murrey Math highlighted in the podcast. We bounced through the downward channel 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 support is Tenkan and Kijun and watch for ABC. From no fear to panic is the driving element.
Recall 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.
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
The S&P closed right on the weekly Kijun after blasting through the downtrend on quad witching. We corrected the reversal of the breakup at Tenkan from there we had had a powerful rally to ATH. Each new high evolved after testing Tenkan key support, we are now getting a retest as resistance, making it support on this move. We reiterate this needs to be recovered for a resumption of the uptrend. We broke the Tenkan this week and watch for Kijun reaction. Extensions are difficult to time, keep it simple.
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
The Dow tested its weekly up channel after bouncing back to test the Tenkan and Kijun we watch for the reaction here. Resistance is the channel, support the cloud and previous breakups.
Nasdaq spat the weekly cloud to the MM 6/8 and Tenkan confluence where it closed with the cloud top and Kijun above. Immediate resistance is this confluence. 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. From there we sold off right to Tenkan (as did SPX) and here we are. Watch Chikou for divergence for continuation or failure. Divergence with Russell also a clue. Support Channel and cloud.
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.
Unlike SPX we could not get through Tenkan and Kijun which rejected the bounce highlighting its weakness. However, like the NASDAQ we broke above the tenkan. 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 now and then cloud base
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 saw Semiconductors rise 2.9% (up 40.0% YTD)
In the bull swing following the announcement of NVDA 4/1 split some levels off the energy break NVidia didn’t look back with many gaps below. We saw another power move off the $200 retest (old $800) & earnings off $300 which failed on the retesting. It is a clear leader of #SOX #SMH look for cues there and ABC failures for changes. Held the base channel ahead of earnings this week.
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. Support held at the previous break near 50wma to close over Tenkan and Kijun as it rebalanced Chikou. Resistance now Fibs and Murrey Math levels. Remember the impact $AAPL has, at least short term on all the major indices.
Amazon double top that filled the gap in 3 waves then reversed through 50wma then gained impulse. We got a KOD to accelerate through cloud to close the week at a 3/8 spit. Earnings ahead.
The ARK Innovation ETF (ARKK), which is filled with growth stocks and was the top-performing U.S. equity fund tracked by Morningstar in 2020, is down over 26% so far this year.
The ARKK ETF trading clinically, tested triangle breakdown and failed off 50 WMA. Trying support at 61.8% of whole move. 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
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:
- Pre-Market: YOU CGEN MNDY TSEM WRBY WEBR WIX
- After-Hours: CCSI GAN GLBE SHLS SSYS TTWO TME
- Pre-Market: AER HD HUYA IHS JD ONON RSKD SE WMT
- After-Hours: AGYS DLO DOCS KEYS NXGN
- Pre-Market: ADI DOYU DT LOW TGT TJX TGI
- After-Hours: BBWI CSCO CPRT GDS SNPS
- Pre-Market: WMS BJ CAE GOOS EXP KSS LSPD MNRO VIPS
- After-Hours: AINV AMAT DECK FLO GLOB PANW ROST VFCF
- Pre-Market: BAH DE FL
- After-Hours: None
“U.S. companies are rushing to cash in on soaring stock prices. It isn’t just the white-hot market for initial public offerings. Companies are returning to the public markets to issue shares and raise cash from investors at the same time that existing shareholders are tapping the public market to unload their stockholdings at a record clip. Companies including Zoom Video Communications Inc. and Norwegian Cruise Line Holdings Ltd. have sold billions of dollars of shares this year… There have been 556 follow-on offerings, or stock sales by companies or existing shareholders, among U.S. companies this year, the most since 1996, according to Dealogic… They have raised a total of $133 billion. Behind the boom in share issuance? An ascendant stock market.” August 25 – Wall Street Journal (Gunjan Banerji):
US IPO Week Ahead:
No new IPOs are expected to start trading next week.
Quiet periods expire on JE Cleantech (JCSE) and Aclarion (NASDAQ:ACON) to free up analysts to post ratings.
Companies rolling off their IPO lockup periods include Sono Group (NASDAQ:SEV), UserTesting (USER), E-Home (EJH), Vivakor (VIVK), Finwise (FINW), Snow Lake Resources (NASDAQ:LITM), Sweetgreen (NYSE:SG), and Advanced Human Imaging (AHI). In some cases, stocks rolling off a big IPO lockup rally over the following week with a major overhang removed.
Part B: Bond Markets
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.’”
Highlights – Treasuries
Investment-grade bond funds saw outflows of $8.186 billion, while junk bond funds posted inflows of $169 million (from Lipper).
U.S. Treasuries saw the 10-yr yield to its lowest level in over two weeks. Treasuries widened their losses in morning action alongside a rally in stocks, but the selling slowed in the afternoon Friday as the 5yr note and shorter tenors remained above morning lows while 10s and 30s dipped to fresh lows. The 2s10s spread tightened by ten basis points to 35 bps over the course of this week.
- 2-yr: +8 bps to 2.59% (-8 bps for the week)
- 3-yr: +8 bps to 2.79% (-11 bps for the week)
- 5-yr: +11 bps to 2.89% (-15 bps for the week)
- 10-yr: +12 bps to 2.94% (-18 bps for the week)
- 30-yr: +11 bps to 3.09% (-13 bps for the week)
All good until markets hold up but take note that the loosest financial conditions in history have supported record corporate debt issuance. While easy credit availability has supported economic activity, funding new investment whilst keeping vulnerable companies afloat. The combination of urban shifts through virus and riots fears fueled a booming MBS market and record low mortgage rates pushed strong housing markets into Bubble risk territory.
Highlights – Mortgage Market
Unprecedented cash payments by the U.S. government to households, changing consumer preferences and lowest mortgage rates in history have fueled a pandemic boom in housing, the fastest pace of increase on record in data from 1988 and prices surpassing the peak from the last property boom in 2005. The S&P CoreLogic Case-Shiller U.S. National Home Price Index has marked the fastest pace of increase on record in data from 1988.
- Freddie Mac 30-year fixed mortgage rates increased three bps to 5.30% (up 236bps y-o-y) – the high since August 2009.
- Fifteen-year rates dipped four bps to 4.48% – near the high since December 2009 (up 222bps).
- Five-year hybrid ARM rates increased two bps to 3.98% (up 139bps).
- Bankrate’s survey of jumbo mortgage borrowing costs had 30-year fixed rates up 17 bps to a more than decade-high 5.55% (up 248bps).
Highlights – Federal Reserve
- Federal Reserve Credit last week added $0.7bn to $8.905 TN. Over the past 139 weeks, Fed Credit expanded $5.178 TN, or 139%. Fed Credit inflated $6.094 Trillion, or 217%, over the past 496 weeks.
- Fed holdings for foreign owners of Treasury, Agency Debt last week declined $3.1bn to a four-month low $3.422 TN.
- “Custody holdings” were down $119bn, or 3.3%, y-o-y.
- Total money market fund assets declined $8.9bn to $4.501 TN. Total money funds were down $15bn, or 0.3%, y-o-y.
- Total Commercial Paper gained $9.4bn to $1.113 TN. CP was down $80.5bn, or 6.7%, over the past year.
Highlights – European Bonds
- Greek 10-year yields declined nine bps to 3.47% (up 216bps y-t-d).
- Ten-year Portuguese yields dropped 21 bps to 2.06% (up 160bps).
- Italian 10-year yields sank 28 bps to 2.85% (up 168bps).
- Spain’s 10-year yields fell 23 bps to 2.00% (up 144bps).
- German bund yields declined 18 bps to 0.95% (up 113bps).
- French yields dropped 20 bps to 1.46% (up 126bps).
- The French to German 10-year bond spread narrowed two to 51 bps.
- U.K. 10-year gilt yields sank 25 bps to 1.74% (up 77bps).
Highlights – Asian Bonds
- Japanese 10-year “JGB” yields were little changed at 0.25% (up 18bps y-t-d). .
Part C: Commodities
- Bloomberg Commodities Index declined 1.6% (up 29.4% y-t-d).
- Spot Gold fell 3.8% to $1,812 (down 1.0%).
- Silver sank 5.6% to $21.11 (down 9.4%).
- WTI crude increased 72 cents to $110.49 (up 69%).
- Gasoline jumped 5.3% (up 78%),
- Natural Gas fell 4.7% (up 105%).
- Copper dropped 2.2% (down 7%).
- Wheat surged 6.2% (up 53%),
- Corn slipped 0.4% (up 32%).
- Bitcoin sank $6,300, or 17.4%, this week to $29,800 (down 36%).
Risk markets continue to respond to the war in Ukraine and the supply crisis from the Coronavirus outbreak and lockdowns.
BDI Freight Index
- TheBaltic Exchange’s dry bulk sea freight index fell 13 points, or 0.4%, at 3,104 points on Friday. The BDI was up 14.2% this week. The overall index, which factors in rates for capesize, panamax and supramax shipping vessels notched up its fifth straight weekly gain.
- The panamax index which tracks cargoes of about 60,000 to 70,000 tonnes of coal and grains, was down 27 points, or about 0.8%, at 3,283 points. The segment gained 3.4%, its second straight week of gains. Average daily earnings for panamaxes, decreased $245 to $29,545.
- The capesize index fell 18 points, or about 0.5%, at 3,947 points, but rose 36.4%, hitting a more than four-month peak and up for the fifth week in a row. Average daily earnings for capesizes, which typically transport 150,000-tonne cargoes such as iron ore and coal, were down $152 to $32,733.
- The supramax index for smaller vessels gained 2 points to 2,752 points.
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.
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.
“Farmers are in a race against the clock to get their crops in the ground this week, with planting of corn, soybeans and wheat well behind their usual pace. Wet and cool temperatures in key parts of the Midwest have delayed farmers’ planting plans, leaving them days to get crops in the ground before they start to lose out on a bigger harvest. If they don’t, some grain traders say that already high prices for agricultural commodities could rise even more… The U.S. Department of Agriculture said 22% of corn was planted, compared with 50% for the previous-five-year average. For soybeans, 12% was planted, compared with the previous-five-year average of 24%, and 27% of spring wheat was in the ground compared with a typical 47%…”May 11 – Wall Street Journal (Patrick Thomas and and Kurk Maltais):
We analyze the WEAT ETF as a surrogate to Wheat given its high beta relationship and more liquid aspect as an investment vehicle.
WEAT broke the large pennant after it spat 8/8, and the minimum target. We have completed a measured 4/8 correction off highs meaning key support as that base, the 50dma and the pennant confluence.
Corn extended its rally to the highest since 2012 in Chicago to +1/8 and has corrected back to the Tenkan. Major grower and shipper Brazil, the center-west region had a dry April, hampering corn in its final development stages before harvest. U.S crops are just being sown, wet and chilly soils has left the plantings pace at its slowest start since 2013.
Soybeans tested the previous +1/8 again to rally just under the Tenkan as it remains in the pennant. Futures continue to pivot the $16/bushel benchmark. Futures spat the Weekly +4/8 over $17.50/bushel twice. The flattening Kijun the magnet just under the 8/8. The weekly cloud and 50wma mingle around the $146/bushel benchmark.
US Crude Oil (WTI)
Another big week for oil, April WTI crude oil (CLJ22) futures settled at $115.68 per barrel. That’s the highest close since September 2008. The high price$115.94, low price today $107.29. For the week, the price is up over 25%. The power was this move was built after hitting our initial 8/8 target completing a iii of (5) or (iii) of 5 as marked. From there we saw a sharp ABC higher and MM recalculation higher. 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. On the way up potent WTI price action indicative of 3rd wave energy highlighted by spits of the Tenkan to new highs.
Recall prior to this move the completion in 5 waves (iii or i) saw heavy selling with eventual confluence kiss of death with 50dma at the top of the cloud. From there down in 3 waves, completing a C or IV? Support wasn’t found until 0-8. From there we have accelerated higher through the cloud twist. Support Kijun and Tenkan. Closed above 50dma with grid above.
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. Support is previous lows, Murrey Math levels and Fib cluster. Support is the 50dma, kijun, tenkan and prev high confluence.
WTI crude Oil futures continued higher with aggression after corrected the sell off 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. Support is the median and Tenkan/Kijun. Long term 61.8% target fueled the spit of a spit by ABC bull flag after rebalanced Chikou sated the 5 waves. Resistance the Murrey Math levels and previous breaks (off monthly)
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
US Natural Gas (Henry Hub)
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.
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.
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.
Recall the impulse wave powered from the spit of 50wma to get over weekly Kijun and Tenkan. This was energized with a series of fractals between old 38 and 50% channel, as you would expect in a seasonal commodity with weather a prime mover. Resistance is Fib/Murrey confluence, support Tenkan, Kijun – as always count your ABC’s
Key Energy Reports
- Around The Barrel – Crude Oil Outlook with A Desperate United States Turning to Iran with Prices Vertical
- Into The Vortex – Natural Gas Outlook with Threats of Russian Ukraine Conflict Hitting Global Supply
- ExxonMobil Delivers Big Earnings, Continues to Pay Down Debt as Oil and Gas Prices Surge
- The Energy Crisis and Volatility See Natural Gas and VIX the Best Performing Futures in January
- Chevron Earnings Miss on Weaker Production Outweighing Gains from Soaring Oil and Natural Gas Prices
- Natural Gas Squeezes in Largest One Day Percentage Move on Record as Traders Caught Short Molecules
- Australian Coking Coal Record High with Strong Demand in Korea and Japan
- OPEC Monthly Oil Market Report January 2022
- Lower US Producer Price Inflation Dependent on Oil Prices
- Fitch Outlook For North American Oil & Gas is Neutral in 2022
- Spot Gold fell 3.8% to $1,812 (down 1.0%).
- Silver sank 5.6% to $21.11 (down 9.4%).
Gold futures settled $8.00 Friday lower (-0.4%) to $1,954.20/oz, up more than +1% on the week. 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.
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
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.”
For the week, the U.S. Dollar Index jumped 0.9% to 104.56 (up 9.3% y-t-d), trading this week to a new nine-year high.
- For the week on the upside, the Japanese yen increased 1.0%
- On the downside, the Australian dollar 1.9%, the euro 1.3%, the Swiss franc 1.2%, the British pound 0.7%, and the Canadian dollar 0.4%.
- For the week on the upside, the Brazilian real 0.4%, and the Mexican peso 0.1%.
- On the downside, the Norwegian krone declined 2.9%, the New Zealand dollar 2.1%, the South African rand 1.0%, the Swedish krona 1.0%, the South Korean won 0.8%, the Singapore dollar 0.6%, Chinese (onshore) renminbi dropped 1.80% versus the dollar (down 6.38% y-t-d).
Australian Dollar – AUDUSD
The Aussie dollar since completing a 5 at the pysch 80 level to fall has continued to correct under the weekly cloud in emotive fashion. The Australian dollar fell to test of the lows of 0.6800 at 4/8 China lockdown fears and AUDUSD forwards. The recent double bottom is now resistance. Support is the Murrey Math Levels. Resistance also the Cloud, Tenkan and Kijun like many commodities.
New Zealand Dollar – NZDUSD
The Kiwi mirrored the AUD in its wave (iii) spit to lower channel wing. Momentum built from the cloud tap and rejected 50% Fib & 4/8 confluence. Kijun and Tenkan Resistance, which is pivotal. Support previous break spits and channel.
Canadian Dollar – USDCAD
The Loonie quickly spat the weekly flat topped triangle with the Tenkan support. Higher US yields has negated oil price impacting direction. Watch flat Kijun and Tenkan. Use Fibs for support and resistance.
Euro – EURUSD
The dollar continues to rise against the euro closing at $1.04, the euro’s lowest closing rate since 2017. Euro continues to correct in what seems like eternal flags in the channel. We watch if Kijun (pink) testing Tenkan (orange) creates any impulse as EURUSD collapses in the channel. Watch 3 waves to see development for continuation. Watch for impulse off Chikou rebalance. Again, governed by EURGBP and Bund volatility.
British Pound – GBPUSD
British pound classic retest of daily cloud break with magnet pull of cloud twist after ABC correction failure. From the GBPUSD low price below lows going back to May 2020 and a test of 2/8 from a +2/8 spit, giving us an 8/8 measured move. The move has been swift the high from early January was 1.3747the low 1.21543, a 1600 pip decline from high to low. The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound.
Euro Pound – EURGBP
EURGBP broke the long bull pennant fueled by Tenkan thru Kijun to the 50wma as the pound collapsed (at a faster pace than the Euro) from there we saw a spit back to the channel break retest.
Japanese Yen – USDJPY
USDJPY broke above after weakness with Treasury yields to rush to +2/8 and channel convergence at 132.00 which saw selling back to +1/8. The price accelerated after the close above the Tankan over 114. The Tenkan is the natural balance of support ahead. 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
Mexican Peso USDMXN
The Peso continues in the long triangle and consolidated despite outside uncertainty from oil and COVID19. Use the Gann octave and the extension fibs to help measure the noise.
Turkish Lire USDTRY
The Turkish Lira’s slow decline continues after 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
Bitcoin performing technically to perfection. Impulse begets impulse. To understand panic, understand greed. $BTC tesed 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….
Bitcoin began the week at $34,000, traded down to $25,488 in early-Thursday panic selling. Rallied Friday to cut the loss for the week to $6,300, or 17.4%, boosting y-t-d losses to 36%.
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…”
- Bitcoin dropped 9.5% Monday, was little changed Tuesday, dropped 8.4% Wednesday, rallied 4.3% Thursday, and added about 4% Friday trading over the past week with a high-to-low range of 30%.
- Ethereum fell 9.8% Monday, recovered 1.6%, sank 12.5%, fell 5.4% and then recovered 6.1% Friday – to end the week down 24.5%.
- XRP slumped 12.1%, recovered 2.0%, sank 27.6%, rallied 3.3% and then jumped 10.9% – to end the week down 29.2%.
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, Bitco. 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.
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
Geopolitical Tinderbox Radar
Economic and Geopolitical Watch
Major banks kicking off earnings this quarter, including BlackRock (BLK), Citigroup (C), First Republic Bank (FRC), JPMorgan Chase (JPM) and Wells Fargo (WFC).
Major US Banks Deliver Mixed Results in Q1, 2021
The major money cents banks released earnings with many record results for Q3. Mainly from trading and loss reserve releases from the pandemic kitty. Rising interest rates also help the bottom line.
- Morgan Stanley Advisory Revenue Nearly Doubled Offsetting Weakness in Underwriting
- PNC Bank Revenue Grew 11% Boosted by the BBVA USA Acquisition.
- Wells Fargo Revenue Falls in Consumer, Corporate and Investment Banking
- Citigroup Earnings Affected by Higher Credit and Russian Exit Costs
- Goldman Sachs Beats Earnings Expectations on Strong Currencies and Commodities Trading Results
- JPMorgan Sets Aside $900 million To Prepare for Economic Turmoil
- BlackRock Profits Rise 20% Despite Lower AUM With Lower Investor Confidence in Markets
Banks stocks have benefited from the Federal Reserve partially lifting its hold on share buybacks, saying that banks can resume repurchases in the first quarter of 2021 as long they don’t exceed the average quarterly profits from their past four quarters. The change came after the Fed found that all major banks passed a second round of stress tests, indicating the firms can continue lending to businesses and households even if the economy dipped into a new recession.
Potentially the top six banks can buy back $11 billion in the first-quarter. Goldman Sachs shares after the announcement led the rally with a 7.7% increase. Morgan Stanley and JPMorgan jumped 6.4% and 4.9% at intraday highs. Within minutes of the announcement all three banks have announced plans to resume buybacks in the new year.
Banks are also 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. Bank stocks rose. otal Non-Financial Debt (NFD) expanded $737 billion during Q3 2020 to a record $60.113 trillion.
Through the first three quarters of 2020, NFD surged an unprecedented $5.740 trillion, or 14.1% annualized. NFD was up $6.181 trillion over the past year (11.5%) and $8.817 trillion (16.7%) over two years. For perspective, NFD expanded on average $1.830 trillion annually over the past decade. NFD has ballooned 71% since the end of 2008.
“Negative yields on long-dated government securities are more reflective of distorted market conditions than of stronger sovereign credit profiles, Fitch Ratings says. Lower interest service costs support sovereign creditworthiness, but this must be weighed against the impact of the economic conditions leading to lower yields and historically high government debt levels in a number of countries.- Fitch”
The Week Ahead – Have a Trading Plan
Watch Central Banker and Geopolitics speeches, reports and rate moves.
In the US, CPI report is expected to show the annual inflation rate eased to 8.1% from a 41-year high of 8.5% in March while the core rate is seen falling to 6% from 6.5%. Investors will also keep a close eye on a batch of speeches from Fed officials. Other releases are producer prices, trade price indexes, preliminary reading for the Michigan consumer sentiment, consumer inflation expectations and the NFIB Business Optimism Index. The earnings season continues with Tyson Foods, BioNTech, Peloton, Walt Disney, Wendy’s, AMC Entertainment due to report.
The US Data
- Monday: May Empire State Manufacturing Survey (prior 24.6) at 8:30 ET and March net long-term TIC flows (prior $141.7 bln) at 16:00 ET
- Tuesday: April Retail Sales (prior 0.5%) and Core Retail Sales (prior 1.1%) at 8:30 ET; April Industrial Production (prior 0.9%) and Capacity Utilization (prior 0.9%) at 9:15 ET; March Business Inventories (prior 1.5%) and May NAHB Housing Market Index (prior 77) at 10:00 ET
- Wednesday: Weekly MBA Mortgage Index (prior 2.0%) at 7:00 ET; April Housing Starts (prior 1.793 mln) and Building Permits (prior 1.873 mln) at 8:30 ET; weekly crude oil inventories (prior +8.49 mln) at 10:30 ET; and $17 bln 20-yr Treasury bond auction results at 13:00 ET
- Thursday: Weekly Initial Claims (prior 203,000), Continuing Claims (prior 1.343 mln), May Philadelphia Fed Survey (prior 17.6) at 8:30 ET; April Existing Home Sales (prior 5.77 mln) and April Leading Indicators (prior 0.3%) at 10:00 ET; and weekly natural gas inventories (prior +76 bcf) at 10:30 ET
- Friday: Nothing of note
FEDERAL RESERVE CHAIR JEROME POWELL
Tuesday, May 17
NEW YORK – Federal Reserve Chair Jerome Powell participates in conversation before the Wall Street Journal Future of Everything Festival, 1400 EDT/1800 GMT. No text. Q&A from moderator. Livestream at www.wsj.com. Spring Studios, 6 St. Johns Lane. Contact: Caitlyn Reuss, firstname.lastname@example.org or 757 642 4267
OTHER FED OFFICIALS
Monday, May 16
NEW YORK – Federal Reserve Bank of New York President John Williams participates in in moderated discussion before the Mortgage Bankers Association Secondary and Capital Markets Conference and Expo, 0855 EDT/1255 GMT. No livestream. No text. Moderated Q&A expected. New York Marriott Marquis, 1535 Broadway, Broadway Ballroom, 6th floor. RSVP: Adam DeSanctis, adesanctis https://www.mba.org/conferences-and-education/secondary-and-capital-markets-conference-and-expo/schedule/session-detail/opening-general-session-economic-outlook-from-the-new-york-fed-74963
Tuesday, May 17
NEWARK, Del. – Federal Reserve Bank of Philadelphia President Patrick Harker speaks on “Healthcare as an Economic Driver” before hybrid Stern Future Healthcare Workforce Summit, 0915 EDT/1315 GMT. Text available. Audience Q&A expected. No media Q&A. Virtual and in-person at the University of Delaware, The Tower at STAR, 4th Floor, 100 Discovery Blvd. RSVP: Daneil Mazone, daniel.mazone Alyssa Augustine, email@example.com or 612 508 6341
CLEVELAND – Federal Reserve Bank of Cleveland President Loretta Mester gives opening remarks before virtual “Cleveland Fed Conversations on Central Banking, Inflation and Monetary Policy: Parallels to and Differences from the 1970s” panel, 1430 EDT/1830 GMT. Via teleconference. No audience Q&A. No media Q&A. No text. RSVP for teleconference link: https://us02web.zoom.us/meeting/register/tZMldemoqjksG9BQdTj_4YEa0gZuBh7o3yFP. Information: Andrew Zajac, 216 579 3196 or firstname.lastname@example.org
NEW YORK – Federal Reserve Bank of Chicago President Charles Evans speaks on current economic conditions or monetary policy before the Money Marketeers of New York University, 1845 EDT/2245 GMT. No livestream planned. Embargoed text available. Audience Q&A and media scrum expected. Dial-in access to media scrum available for media not in attendance. RSVP: Gloria Nixon, email@example.com
Wednesday, May 18
PHILADELPHIA – Federal Reserve Bank of Philadelphia President Patrick Harker speaks on the economic outlook before virtual Mid-Size Bank Coalition of America CEO Talk, 1600 EDT/2000 GMT. Text available. Audience Q&A expected. No media Q&A. RSVP: Daneil Mazone, firstname.lastname@example.org
Thursday, May 19
MINNEAPOLIS – Federal Reserve Bank of Minneapolis President Neel Kashkari participates in Urban Institute virtual conversation, “Inflation and its Consequences for Families with Low and Moderate Incomes,” 1500 CDT/1600 EDT/2000 GMT. No Q&A. RSVP online: https://www.urban.org/events/inflation-and-its-consequences-families-low-and-moderate-incomes. Contact: Alyssa Augustine, email@example.com or 612 508 6341
Monday, May 23
ATLANTA – Federal Reserve Bank of Atlanta President Raphael Bostic participates in conversation on the economic outlook before an Atlanta Rotary event, 1200 EDT/1600 GMT. No livestream. Audience and media Q&As expected. No embargoed text. Loudermilk Conference Center, 40 Courtland Street. RSVP to attend: media Karen Mracek, firstname.lastname@example.org
Europe and the UK
The United Kingdom will be publishing preliminary estimates of first-quarter GDP and business investment data, alongside foreign trade balance, industrial production and construction output for March. The British economy likely grew 1% in Q1, easing from a 1.3% expansion at the end of last year due to a decline in households’ incomes.
In the EU factory activity likely declined in March, when most of the impact of the war in Ukraine started to be reflected. German investor morale is seen falling for the third consecutive month in May, remaining at the lowest level since March 2020.
Other key data includes; Eurozone Zew economic sentiment index; Germany final inflation figures; France foreign trade; Italy industrial activity; Turkey jobless rate and industrial production; and Russia consumer price index. Russia annual inflation accelerated to 17.73% as of April 29th, the highest since 2002 and up from 17.70% a week earlier. On a weekly basis, consumer prices increased 0.21%, easing from 0.25% a week earlier after the central bank cut interest rates.
In Australia data includes consumer and business sentiment from Australia.
In China, an inflation rate is seen hitting 1.9% in April, a rate much below other major economies as persistent lockdown and social distancing measures hurt demand. Trade data will also take front stage.
In India, there will also be trade and inflation data on the calendar, however, consumer prices are seen rising a much faster 7.5% in April. Also, first-quarter GDP data from the Philippines and Indonesia will be interesting to watch, to see how two island nations performed amid large virus outbreaks in the first half of the quarter, and particularly for Indonesia, how it benefited from the rally in commodities.
An interest rate decision and job data in Malaysia, labor market data from South Korea, and Japan’s March current account.
Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2022.
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