Daily Brief For May 13, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures in price discovery.

  • Inflation contagion hits pocketbook.
  • Ahead: Claims, PPI, and earnings.
  • Index futures are lower but steady.

What Happened: U.S. stock index futures continued their sell-off, overnight, after a strong move lower, Wednesday.

Graphic updated 7:00 AM EST.

What To Expect: Thursday’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 the potential for immediate directional opportunity.

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by initiative trade below Tuesday’s excess low. This is significant because that reference marked the start of a prior intermediate-term bounce.

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.

This downside price discovery comes alongside the release of poor employment and payroll data. 

Price Discovery (One-Timeframe Or Trend): Elongation and range expansion denotes a market seeking new prices to establish value, or acceptance (i.e., more than 30-minutes of trade at a particular price level). 

“‘Markets have lost a little bit of confidence that the Fed has control of inflation’ and the concern was that the central bank might wait too long to address the rise,” Victoria Fernandez, Crossmark Global Investments chief market strategist, said. “I am not sure the market is extremely comfortable with that at this point.”

However, that said, stock indexes may be positioned for a vicious rebound as near-term downside discovery may have reached a limit, based on market liquidity metrics and the inventory positioning of participants. According to SqueezeMetrics, the steepness of the GammaVol (GXV) curve suggests that there’s more risk to the upside than the downside, at the S&P 500’s present juncture.

More On Gamma: In the simplest way, gamma is the sensitivity of an option to changes in underlying price. Dealers that take the other side of option trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.

Knowing the above, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,051.00 regular trade low targets the $4,069.25 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as $4,082.75 HVNode, $4,105.75 low volume area (LVNode), and then the $4,117.00 POC. 

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 $4,051.00 puts the index within a composite low-volume zone, a situation in which follow-through, to the next high-volume area, is likely. Further, participants, in such a case, should look for responses at the $4,015.00 and $4,001.00 POCs, the $3,980.00 50% Fibonacci retracement, the $3,943.00 HVNode, and lastly, the $3,918.25-$3,908.00 Fibonacci and volume area confluence zone.

Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
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).
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 12. Activity in the options market was primarily concentrated in short-dated tenors, in put strikes as low as $389.00, which corresponds with ~$4,000.00 in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: SHIFT search suggests participants were most interested in short-dated put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX), Wednesday. 
Graphic: SHIFT search suggests participants were most interested in long-dated call strikes at and above current prices in the cash-settled Nasdaq 100 Index (INDEX: NDX), Wednesday.

News And Analysis

Crypto | Musk splits from Cathie Wood’s Ark on Bitcoin’s environment cost. (BBG)

Economy | Travel bookings are surging as vaccines unleash pent-up demand. (Axios)

Markets | The SPAC King doing just fine even as the bubble starts to burst. (BBG)

Energy | Top U.S. pipeline recovering from a devastating ransomware attack. (REU)

Markets | Hedging gets frantic as puts soar amid stock market hammering. (BBG)

Economy | April’s inflation surge wasn’t as drastic as it looked. Real test ahead. (CNBC)

What People Are Saying

Innovation And Emerging Trends

MedTech | Unpacking how mRNA molecule became a vaccine game-changer. (FT)

Energy | Nuclear reactions are increasing in an inaccessible Chernobyl chamber. (CNET)

Climate | The Fed privately presses big banks on risks from climate change. (REU)

Economy | China bets on productivity, over population, to drive its economy. (BBG)

Crypto | Fintech giant Ant Group’s MYbank joins China’s digital yuan platform. (SCMP)


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, 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.

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