Daily Brief For April 23, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures base. Position for directional resolve.

  • Tax hike news causes a liquidation.
  • Home sales. Biden climate summit.
  • Indices are correcting through time.

What Happened: U.S. stock index futures auctioned sideways, overnight, after liquidating alongside reports that President Biden wants to nearly double the capital gains tax paid by top earners.

Liquidation Breaks: The profile shape suggests participants were “too” long and had poor location. The news event helped resolve this dynamic.
Updated: 8:45 AM EST

What To Expect: Friday’s regular session in the S&P 500 (9:30 AM – 4:00 PM EST) will likely open inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity. 

Adding, during the prior day’s regular trade, the worst-case outcome failed to occur. 

In the interest of objectivity, despite the $4,117.75 regular trade low (RTH Low) being taken out, responsive buyers stepped in aggressively, causing the S&P 500 to halt short of the $4,110.50 poor, minimal excess low. This action is noteworthy — had the poor low been taken out, conditions would have been markedly different. Instead, given technical nuances, it is obvious the market is correcting in time (i.e., balancing), rather than price.

Responsive Buying: Buying in response to prices below area of recent price acceptance.

Excess: A proper end to price discovery; the market travels too far while advertising prices. Responsive, other-timeframe (OTF) participants aggressively enter the market, leaving tails or gaps which denote unfair prices.

Balance (Two-Timeframe Or Bracket): Rotational trade that denotes current prices offer favorable entry and exit. Balance-areas make it easy to spot change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).

Simply put, markets are basing, pricing in new information, ahead of any directional resolve.

Important to add into the narrative, too, are historical responses to capital gains tax increases.

Bloomberg’s John Authers notes: “The way the market handled the last major CGT increase, at the end of 2012, is instructive. As it grew clear that higher capital gains taxes were coming, the S&P 500 languished and went sideways for the last few months of the year, closing roughly where it had been in March. Then 2013 turned out to be a great year; stocks started their rally at the beginning of January and never really stopped.”

Graphic: Bloomberg unpacks implications of a capital gains tax hike. 

“Stocks do indeed tend to fall in the run-up to the change, but more than make up for it thereafter. Earnings multiples increased slightly before those rises, but did better in the six months afterwards. And households sold a little before the hikes, but more than made up for it.”

The highest returning, momentum stocks, however, stand to lose the most. Given that “[m]omentum stocks have had something of a correction in recent months, … it is unlikely that the tax change will have a major effect on them.”

For today, moreover, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,137.25 high-volume area (HVNode) targets the $4,162.50 VPOC. Initiative trade beyond the VPOC could reach as high as the $4,183.50 regular trade high (RTH High). In the worst case, the S&P 500 trades lower; activity below $4,115.25 targets the $4,110.50 poor, minimal excess low. 

Volume Areas: A structurally sound market will build on past areas of high-volume. Should the market trend for long periods of time, it will lack sound structure (identified as a low-volume area which denotes directional conviction and ought to offer support on any test). 

If participants were to auction and find acceptance into areas of prior low-volume, then future discovery ought to be volatile and quick as participants look to areas of high-volume for favorable entry or exit.

Initiative Buying: Buying within or above the previous day’s value area.

POCs: POCs (like HVNodes described above) are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

Thereafter, if lower, participants can look for responses at (1) the $4,093.00 VPOC, (2) $4,082.75 HVNode, and (3) the $4,069.25 HVNode.

Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for April 22. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $400.00, which corresponds with $4,000.00 in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: Increase in put-side interest on the cash-settled S&P 500 Index (INDEX: SPX). Such activity suggests participants are interested in hedging their downside. Visual via SHIFT.
Graphic: Price and volume delta, or buying and selling power as calculated by the difference in volume traded at the bid and offer, diverge into the close in the SPDR S&P 500 ETF Trust (NYSE: SPY).

News And Analysis

Economy | Senate Republicans rolled out a $568B infrastructure proposal. (Axios)

Economy | The Fed’s monthly bond purchases endure as goals fall short. (S&P)

Wellness | Studies show the coronavirus can kill months after infection. (BBG)

Economy | EU economy ‘on crutches,’ warns ECB chief Christine Lagarde. (DW)

Markets | High-yield corporate bond issuance, prospects for a recovery. (Moody’s)

Politics | Russia is planning to end a massive troop buildup near Ukraine. (Axios)

Economy | $12.3T in stimulus killed off the U.S. credit default cycle. (BBG)

Banking | Two blowups have Credit Suisse paying the price for riskiness. (BBG)

Economy | March mortgage delinquency drop exaggerated by events. (MND)

Markets | Mortgage rates improve on 7-week lows, bond market stable. (MND)

Markets | GS: Congress is likely to cap Biden’s CGT hike at around 28%. (MI)

Markets | Scale of T-Bill drought hinges on Biden rescue, income-tax haul. (BBG)

What People Are Saying

Innovation And Emerging Trends

Transportation | Newer planes providing airlines trove of useful data. (NYT)

FinTech | app connects users with public company leaders. (BZ)

FinTech | From breakthroughs to copycats, here’s what to consider. (Fortune)

FinTech | Signal Advisors adds Series A for financial advising tech. (BZ)

Education | MasterClass co-founder secures funding for new ed-tech. (BZ)


Renato founded Physik Invest after going through years of self-education, strategy development, and trial-and-error. His work reporting in the finance and technology space, interviewing leaders such as John Chambers, founder, and CEO, JC2 Ventures, Kevin O’Leary, Canadian businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others, afforded him the perspective and know-how very few come by.

Having worked in engineering and majored in economics, Renato is very detailed and analytical. His approach to the markets isn’t built on hope or guessing. Instead, he leverages the unique dynamics of time and volatility to efficiently act on opportunity.


At this time, Physik Invest does not manage outside capital and is not licensed. In no way should the materials herein be construed as advice. Derivatives carry a substantial risk of loss. All content is for informational purposes only.

Leave a Reply