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Commentary

Daily Brief For June 21, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures attempt to balance.

  • Yield curve flattens, China eyes BTC.
  • Ahead: CFNAI. ECB and Fed speak.
  • Indices auctioned sideways to higher.

What Happened: U.S. stock index futures auctioned higher and yields dropped.

After a big shift in the Federal Reserve’s so-called dot-plot, bond yields on the short-end of the curve rose while long-dated yields dropped in line with projections future inflation is easing. This flatter yield curve is a negative for cyclical stocks which can’t pass on increased costs, thereby impacting sales and margins.

Given the divergence across major, broad market indices, the implications of a flatter yield curve are apparent. Investors sold, heavily, cyclical stocks, evidenced by relative weakness in sectors like financials and transportation. 

In other areas, bitcoin fell after China cracked down on crypto-related transactions. Oil held its highs on a slowdown in talks between the U.S. and Iran. 

Ahead is data on the Chicago Fed National Activity Index (CFNAI). Also, today, members of the ECB and Fed will speak. 

Graphic updated 7:10 AM ET.

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 the prior day’s regular trade, the worst-case outcome occurred, evidenced by initiative trade below the $4,177.25 high volume area (HVNode) and end-of-day spike liquidation to and through $4,161.00, a strong support going into Friday’s derivative expiry.

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).
Graphic: SpotGamma analysis suggested minimal support below $4,200.00, in the S&P 500.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,161.00 spike base puts in play the $4,177.25 HVNode. Initiative trade beyond the $4,177.25 HVNode could reach as high as the $4,199.25 HVNode.

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.

In the worst case, the S&P 500 trades lower; activity below $4,161.00 suggests an acceptance of Friday’s knee-jerk move from value. In such a case, participants are cautioned on further downside. First comes the $4,153.25 HVNode. Thereafter, if lower, participants can target the overnight low (ONL) at $4,126.75 and HVNode at $4,122.25.

Overnight Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.
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). Noting, seasonality supports the Nasdaq 100’s relative strength. 
Graphic: SHIFT search suggests participants were most interested in call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside.

News And Analysis

Energy | Natural-gas glut has evaporated, driving prices higher. (WSJ)

Economy | Supply chain risks extend into 2022, stoking inflation. (WSJ)

Travel | American Air cuts some flights to avoid potential strains. (WSJ)

Politics | House bills put big tech step closer to antitrust regulation. (Fitch)

Markets | Goldman, JPMorgan pin emerging-market bets on hawks. (BBG)

Politics | Infrastructure bill talks continue; China comes in focus. (Moody’s)

Travel | Europe’s air traffic reaches 50% of 2019 amid recovery. (BBG)

Travel | Canada won’t fully reopen border until 75% vaccinations. (BBG)

What People Are Saying

Innovation And Emerging Trends

Technology | GM plans to expand its fuel-cell business beyond EVs. (CNBC)

Technology | Why the big automakers are pouring money into robotics. (TC)

Education | The pandemic’s effects have depressed college enrollment. (Axios)

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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