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Commentary

Daily Brief For June 16, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures in balance.

  • Ahead: Housing starts, trade prices, FOMC.
  • Indices diverge and trade sideways to lower.

What Happened: U.S. stock index futures auctioned sideways ahead of an important Federal Open Market Committee (FOMC) announcement at 2:00 p.m. Eastern Time, today.

As stated in prior commentaries, the odds of substantial change to policy are low. Instead, participants will likely hear that despite Fed policy remaining unchanged, tools exist to combat inflation.

Also, before the open, China established orders limiting exposure to overseas commodities and U.K. consumer prices rose. Important releases, aside from the Fed decision, include data on housing starts and trade prices, as well as text on infrastructure.

Graphic updated 7:13 AM ET.

What To Expect: Wednesday’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 the prior day’s regular trade, the worst-case outcome occurred, evidenced by a liquidation break that found acceptance below the $4,238.00 spike base. That is significant because it negated the knee-jerk, end-of-day bullishness of Monday’s session.

Liquidation Breaks: The profile shape suggests participants were “too” long and had poor location. This corrective activity enables favorable entry and exit.

Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,234.25 high volume area (HVNode), which corresponds with the average price bought and sold (via the VWAP) since consumer price data was released last week, puts in play the $4,249.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,258.00 overnight high (ONH) and $4,270.25 Fibonacci price extension.

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.

Volume Weighed Average Price (VWAP): The average price at which a stock is traded over a certain horizon.

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 the $4,234.25 HVNode suggests caution. It is likely participants will trade to the $4,227.75 HVNode. Thereafter, depending on how participants respond to a test of the HVNode, if lower, the $4,213.75 LVNode and balance area low (BAL) come into play, first. Initiating below the BAL is bearish. In that instance, if selling is aggressive, the $4,177.25 HVNode is in play.

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). Important to monitor where the indices close, today. Above balance high or trend, bullish. Below, that’s near-term bearish.
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), yesterday.

News And Analysis

Economy | U.K. inflation’s jump above BOE goal stirring a debate. (BBG)

Economy | China’s economic data disappoints as spending lags. (BBG)

Politics | Disagreements, low expectations as Biden and Putin meet. (REU)

Economy | U.S. retail sales drop, hinting at shift to services spend. (BBG)

Politics | China’s government made warning. Planes fly over Taiwan. (Axios)

Markets | Citi is latest to warn of bigger-than-expected trading drop. (BBG)

What People Are Saying

Innovation And Emerging Trends

FinTech | The big difference between a digital dollar and a CBDC. (BBG)

Markets | Everyone’s a rising star when debt is relatively cheap. (BBG)

Markets | Well-behaved bubbles often make history. An analysis. (a16z)

Markets | The latest blow to 60/40 model is an exodus of pensions. (BBG)

COVID | How prior coronavirus infections factor into herd immunity. (Axios)

Travel | You’ll soon be able to use your iPhone as ID at the airport. (Verge)

FinTech | Exchanges are looking to accelerate their cloud adoption. (TM)

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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