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Commentary

Daily Brief For May 5, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures attempt to exit balance.

  • Yellen walks back rate comment.
  • Ahead is employment, ISM data.
  • Divergence grew, low conviction.

What Happened: U.S. stock index futures auctioned higher overnight as Treasury Secretary Janet Yellen clarified her comments on interest rates. 

The Secretary’s note that rates may “have to rise somewhat” to protect the economy from overheating weighed on the market. Most hurt was the Nasdaq 100; higher rates may reduce the present value of future earnings, making innovation-driven growth stocks less attractive.

Graphic updated 8:00 AM EST.

What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open just outside 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 occurred, evidenced by initiative trade below the $4,167.25 low, which is significant because it was a level that participants, for numerous sessions, supported.

Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Dow is the strongest of the four. The Nasdaq is the weakest.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above $4,178.00 high-volume area (HVNode) targets the $4,189.00 POC. Initiative trade beyond the POC could reach as high as the $4,200.00 HVNode and $4,210.75 minimal excess high. 

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.

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.

In the worst case, the S&P 500 trades lower; activity below the $4,178.00 HVNode puts in play the prior day’s POC near $4,141.00 and the $4,110.50 minimal excess low. Trade below $4,110.50 puts in play the $4,093.00 POC, $4,082.75 HVNode, and $4,067.00 POC.

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.
Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures. Noting the $4,178.00 pivot.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 4, 2021. Notable activity in the options market was primarily concentrated on the call-side, in short-dated tenors, in strikes at and around $414.00, which corresponds with $4,140.00, or so, in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: SHIFT search suggests participants are still not as inclined to add call-side exposure, through the month of May, in the SPDR S&P 500 ETF Trust (NYSE: SPY).

News And Analysis

Economy | Biden’s Fed choices add uncertainty for inflation-wary investors. (BBG)

Economy | Post-COVID U.S. births drop to the lowest level since the 1970s. (BBG)

Commodities | IEA: Governments should consider stockpiling battery metals. (BBG)

Markets | Facing chips shortage, Biden may shelve blunt tool used in COVID. (REU)

Economy | Private payrolls show big gain in April but still short of expectations. (CNBC)

Markets | Commodities jump to highest since 2011 on COVID-19 rebound. (BBG)

Economy | Weekly mortgage demand stalls as rates rise, competition hurts. (CNBC)

What People Are Saying

Innovation And Emerging Trends

FinTech | CME exchange plans to permanently close physical trading pits. (REU)

FinTech | Robinhood CEO holds up crypto exchanges as model for settlement. (TB)

Venture | Proposed changes to capital gains could affect VCs differently. (CB)

Crypto | S&P Dow Jones launches series of cryptocurrency benchmarks. (MM)

FinTech | Berkshire Hathaway’s stock price too much for Nasdaq computers. (WSJ)

About

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.

Disclaimer

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.

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