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Commentary

Daily Brief For May 18, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures attempting to exit balance.

  • Potential deal on infrastructure package.
  • Ahead: Housing starts, building permits.
  • Indices balance, move up-and-sideways.

What Happened: U.S. stock index futures auctioned higher overnight after an attempt to probe lower, yesterday, was countered by strong responsive buying.

Graphic updated at 7:20 AM EST.

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

Gap: Gaps ought to fill quickly. Should they not, that’s a signal of strength; do not fade. Leaving value behind on a gap-fill or failing to fill a gap (i.e., remaining outside of the prior session’s range) is a go-with indicator. Auctioning and spending at least 1-hour of trade back in the prior range suggests a lack of conviction; in such a case, do not follow the direction of the most recent initiative activity.

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by sideways trade just under the $4,177.25 high volume area (HVNode), which is significant because that level marks a major pivot on the composite profile (i.e., above = bullish, below = bearish-to-neutral).

To note, however, despite bullish dynamics ahead of this week’s monthly options expiration (OPEX), participants are unable to gather the conviction and breakthrough to higher prices. This evidenced by a developing ledge at the $4,177.25 HVNode pivot. 

Options Expiration (OPEX): Option expiries mark an end to pinning (i.e, the theory that market makers and institutions short options move stocks to the point where the greatest dollar value of contracts will expire worthless) and the reduction dealer gamma exposure.

Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack the confidence to continue the discovery process. The ledge will either hold and force participants to liquidate (cover) their positions, or crack and offer support (resistance).

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.

Moreover, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; like yesterday, 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).

Graphic: 65-minute 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). Note that the SPX, RUT, and DJI are about to break out of their most recent downtrends. Monitor for continuation. 
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), May 17.

News And Analysis

Markets | Burry of ‘Big Short’ fame reveals a $530 million Tesla bet. (REU)

Energy | Brent crude hits $70 as traders bet on sustained demand. (FT)

Technology | Biden pitching $174B electric vehicle plan in Michigan. (REU)

Economy | Yellen wants businesses to help foot infrastructure bills. (Axios)

Recovery | Several states report zero COVID deaths for the first time. (Axios)

What People Are Saying

Innovation And Emerging Trends

Venture | Growth firms, as most active investors, look to double down. (CB)

Energy | Energy groups must stop new oil, gas projects, IEA said. (FT)

Markets | Small Exchange lowers barrier to energy with new futures. (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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