Good Morning Traders and Investors and thank you for joining me for another edition of the Magnelibra Markets Podcast, I’m your host Mike Agne and today’s episode #31 is entitled “Markets Seem Like They Need a New Catalyst and the Dollar Stronger, Yields Spike, Earnings”
Quick Disclaimer: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and may not be appropriate for all listeners.
So we know the yesterdays trading started out overnight once again weaker with China continuing to get pounded. However we feel that perhaps there is some light at the end of the tunnel here. We decided to take a look at the Hang Seng Index monthly chart. What we would like to point out is that this index is attempting to take out the 2022 lows but has not been able to yet. I think we need to take that low out before this rebounds. The index is about 6.5% away and what we would like to see technically is a move to take this low out and then a rebound to close on a weekly basis back above it. Technically this would mean the market has flushed out the final shorts and they have capitulated. Now we may not get it and the 15695 area on the monthly is the 0.786 Fib. and this is an important Target/Reversal area, so a monthly close above this and it would signal a potential bottom. So take a look at our chart here and it could be the case where money flows out of US equities and money may start to pour back into China’s Index. So will see but the US and China Indexes obviously have moved inversely for most of the last year and that could change:
So that is one thing we are looking at is the Euro Currency, technically it has breached some key levels here and the US dollar should continue to strengthen up from here this weeks close will be key and for now the Euro is trading below the key support area of 108-00 in the March Futures:
The next chart is that of the Russell2k and boy does this thing look bad honestly the rejection from that 2022 area and that false breakout just seems to us as if this thing wants to tumble here. Now if we can break back out above 2022 this would change the theme but for now momentum seems to favor continued weakness here:
Our final futures chart is that of Gold, gold is once again failing from our upper band channel. This should lead to a continued move back down and should target the 21 VWMA down at $1910:
So those are the technical’s that we are watching futures wise here. In regards to the US bond market and the current adjustment higher in yields we would like to see this 4.40% area get rejected and the resumption roll over back down in yields to occur:
Ok in regards to earnings we looked at a few names that are reporting today, but the only one that really stands out are Eli Lilly (LLY) and Chipotle (CMG).
Now honestly Eli Lilly should be in our top MEGA8s and we may put them in there and kick Tesla out. We will decide upon that this week. Anyway the stock has been on a massive tear this year and its truly on the heels of its two new drugs Zepbound and Mounjaro. Zepbound is their obesity medicine and Mounjaro is their diabetes treatment and Mounjaro is expected to post a massive increase in sales above $1.7Bn for the quarter up from $279m for the same quarter in 2022. Sales are estimated at $8.9Bn and earnings of $2.30 per share. (FactSet) LLY is +5.2x Since Jan 2020. When we look at the At the money options expectations, they are priced for a 6.4% move to breakeven. Skew is tilted to the calls and we suspect any in line expectations to be met with selling and like META if the earnings blow out, will see market makers cover their short call positions and force this thing higher:
When we look at Chipotle, the ATM B/E options for Friday’s expiration are looking for a 6.5% move so with CMG at $2470 a $160 move seems like a lot and when we look at the options there is some decent interest in the $2300 Puts so let’s see how the market reacts. Call interest is solid from $2500 to $2520 but we have to remember, CMG is +13% over the last month! The $2400/$2300 put spread for Friday’s expiration is around $39 not a great risk reward in our opinion rather you would have to roll down to the $2350/$2250 for $17 to get a decent 5.9 to 1 payout risk reward structure and would need a hefty 8.9% move to realize full value:
We also have MicroStrategy reporting after the close so let’s keep an eye on that Bitcoin play as well!
Alright lets move into yesterday’s settlement page. I figure there really isn’t too much to say other than fast money continues to believe that rate cuts will be pushed out past March. From yesterday’s settlements page we can see that the bonds once again took it on the chin and the long end of the curve in regards to the 30Y was nearly +12bp on the day and is now down 4.8% on the year based off the futures. Once again we can see the 5Y sector seeing the bulk of the selling as it rose almost 13bp on the day. When we look at the equity markets the Nasdaq futures did trade below the 17600 level in the morning but by the afternoon posted a rally to close at 17700 down -32.75 with the SP500 off -18.25. While the Russell2k continues to get hit losing -26.80 points. All in all equity wise, now that the tech giants have come and gone we will focus on the core earnings this week from some of the majors but we still believe seasonality will dampen some of this recent upside. The US dollar was once again strong across all of the FX land with the British Pound the weak link, down 105 pips. Energy was stronger across the board with RBOB outperforming and Crude holding that important $72 level for now. Metals were all weaker and do not look good technically here:
As far as the Magnelibra Futures Model Tracker there are some changes to note today it flipped the R2K to a short now, it flipped the E6 Euro Currency to a short now, it reduced the RBOB short and reduced the Silver long by -0.2:
As far as the MEGA8s Nvidia is once again the leader and +$31.72 or 4.8%. Nvidia added another $78Bn in market cap and is now up $1 Trillion in 9 months! Tesla continues to fall and settled down at $181.06 -3.65%. The tracker has put on the 430C for expiration this Friday as the package hedge:
Ok let’s end this podcast with two technical equity charts, first up Netflix it is failing at the very important level of $585 and technically a weekly close below $557 is going to give us a short term top signal. Now Netflix is a tech name and if this thing starts to falter, it will start to bring into question the other names so we are eyeing this one here closely:
The second chart is one we have posted a few times before Lululemon. Last weeks candlestick was an absolute disaster as the week failed to make a new high and it closed nearly on its lows. A close this week below $445 will indicate a short term major top for us and should see a retest back below $420 fairly quickly:
That is all for today guys, we thank you for listening and as always please give a like and or share our work if you can and absolutely if you haven’t already think about hitting that subscribe button. Our goal is simple, to make Magnelibra listeners the most informed, well educated and financially savvy individuals out there, You owe it to yourself, so sign up and spread the word! Till next time, cheers.
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