Categories
Commentary

Daily Brief For June 17, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures exit balance, discover lower prices.

  • The Fed eyes taper, signals faster tightening.
  • Ahead: Claims, Business Outlook, and more.
  • Indices exit balance, trade lower, then base.

What Happened: U.S. stock index futures auctioned sideways-to-lower after news the Federal Reserve is signaling a faster-than-expected pace of policy tightening. This comes alongside concerns over inflation which the Federal Reserve suggests is transitory. 

“The reason for the committee moving a bit in this direction is risk management,” said Jonathan Wright, an economics professor at Johns Hopkins University and a former Fed economist. “The risks of overheating are a bit greater than they were.”

Today, participants get data on weekly jobless claims, the Philadelphia Fed Business Outlook, and the U.S. Leading Index. Additionally, Janet Yellen will speak on the budget and the SEC may issue a decision on cryptocurrency ETFs.

Graphic updated 7:25 AM ET.

What To Expect: Thursday’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 initiative trade below the $4,227.75 high volume area (HVNode). This is significant because that level marked a pivot (i.e., above = bullish, below = bearish) on the composite profile. 

Initiative Selling: Selling within or below the previous day’s value area.

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.

It is important to think about who is winning and losing. We start by anchoring a VWAP (blue in color on the below graphic) from the time of the Federal Reserve event. Clearly, the S&P 500 is trading below this VWAP. This suggests the average buyer, since yesterday’s liquidation, is losing. Trading (and staying) above this blue line changes the dynamics; in such a case, shorts should reconsider their involvement.

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

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,207.25 VWAP (blue in color on the below chart) puts in play the $4,227.25 HVNode. Initiative trade beyond that HVNode could reach as high as the $4,235.00 Virgin Point Of Control (VPOC), $4,249.00 low volume area (LVNode), and $4,258.00 overnight high (ONH).

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

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 sideways or lower; activity below the blue VWAP suggests a risk-off sentiment remains. In such a case, there is the potential to test lower, into the $4,182.50 overnight low (ONL) and $4,177.25 HVNode. If a probe into lower value is not responded to, lookout. There’s a higher potential to trade to the HVNodes at $4,153.25, $4,122.25, and $4,069.25.

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).
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. Noting, participants are still paying up for upside call exposure.

News And Analysis

Energy | Climbing oil prices signal the need for more output. (REU)

Markets | OPEX is a huge thing and June FOMC a non-event. (HR)

COVID | Delta variant fuelled a 50% rise in England infections. (REU)

Economy | World Bank rejects El Salvador’s request on BTC. (REU)

Energy | Blistering heatwave hits California and fire risks build. (Axios)

What People Are Saying

Innovation And Emerging Trends

Markets | OnlyFans explores share sale after the lockdown boom. (FT)

FinTech | New crypto working group in Congress to hone policies. (TB)

Markets | Cboe extends global trading hours in SPX, VIX options. (MM)

Markets | How SEC boss should deal with ‘meme’ stock schemes. (NYP)

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s