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Commentary

Daily Brief For May 17, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures in balance.

  • Themes: Inflation, COVID outbreaks.
  • Ahead: Manufacturing, housing data.
  • Indices are lower but holding up well.

What Happened: U.S. stock index futures auctioned lower, overnight, alongside a so-called flight to safety. Bonds and metals were higher while risk assets, like equities and cryptocurrencies, were down.

At the same time, supply-side disruptions continue with coronavirus outbreaks in Asia; Taiwan’s benchmark index fell nearly 4% during overnight trade.

In terms of releases, participants are looking forward to Empire Manufacturing and the NAHB housing market index for May. Also, an Atlanta Fed conference begins, today.

Graphic updated at 7:00 AM EST.

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

Adding, during Friday’s regular trade, the best case outcome occurred, evidenced by initiative trade up to the $4,177.25 high volume area (HVNode). This is significant because that level marks a major pivot on the composite profile (i.e., above = bullish, below = bearish-to-neutral). To note, however, participants were unable to introduce meaningful excess at the recovery 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.

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.

It is important to touch on the push-pull dynamic in markets, over the past few weeks. 

Historically speaking, equities are in a seasonally weak period. At the same time, inflation and uninspiring economic data are major worries investors are attempting to price in. Despite these emerging themes, JPMorgan Chase & Co’s (NYSE: JPM) Marko Kolanovic, in a CNBC appearance, said that the market is a little oversold, and his S&P 500 target of $4,400.00 remains in play.

“I think market is now actually getting cheap, in some sense,” Kolanovic said. “I think we’re at the end of this upset. I think the market is going to go higher here. That said, we do still again prefer reflationary themes.”

Given the brief fundamental context, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,177.25 HVNode pivot may reach as high as the $4,227.00 POC. Initiative trade beyond the POC targets the $4,238.00 overnight high (ONH).

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.

Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

In the worst case, the S&P 500 trades lower; activity below $4,177.25 has the potential to reach down, through the $4,129.25 and $4,069.25 HVNodes, to the $4,050.75 low volume area (LVNode). 

Trading beyond the LVNode, caution longs. The S&P 500 may rapidly discover lower prices, repairing the poor, low-volume structure down to the $3,979.50 Fibonacci retracement. Closeby is the $3,953.25 HVNode and $3,908.25 composite HVNode (a key response area).

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: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), last week. It appears that participants were positioning themselves in strikes across further-dated expiries (e.g., June 18, 2021) suggesting more commitment.

News And Analysis

Trade | Surging corporate demand is upending global supply chains. (BBG)

Credit | Fiscal stimulus, borrower discipline behind loan asset quality. (Moody’s)

Economy | Households and most U.S. children to get monthly stimulus. (REU)

Travel | United to add more than 400 daily flights in July amid demand. (REU)

Trade | EU agrees to a partial truce with the U.S. over old Trump tariffs. (REU)

Markets | Companies flush with cash, ready to pad shareholder pockets. (WSJ)

What People Are Saying

Innovation And Emerging Trends

Travel | Bankers flee Wall Street, head home to virus-free Australia. (BBG)

FinTech | Crypto, blockchain must accept problems, lead in sustainability. (TC)

Energy | The electrification of everything: what you need to know. (WSJ)

FinTech | How you can build a DIY robot-advisor using Passiv. (BZ)

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, 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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