Categories
Commentary

Daily Brief For June 22, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures reject lower prices, rise rapidly, then trade sideways.

  • Cryptocurrencies in peril, investors weigh Fed.
  • Ahead: Fed speak, home sales, manufacturing.
  • Indices trade sideways to higher after rejection.

What Happened: U.S. stock index futures auctioned sideways to higher overnight.

Ahead, Federal Reserve Chair Jerome Powell will testify before the House Select Subcommittee on the coronavirus crisis. Beyond Powell’s appearance, participants also have to watch out for data on U.S. existing home sales and June Richmond Fed Manufacturing, as well as Fed-speak by Loretta Mester and Mary Daly. 

In other parts of the market, cryptocurrencies sold while WTI crude traders finally found responsive sellers at around $73.40.

Graphic updated 7:25 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,161.00 spike base. This is significant because that reference marked the beginning of a breakdown from value, Friday.

The violent price rise comes just after investors sold, heavily, cyclical stocks – evidenced by relative weakness in sectors like financials and transportation – after policymakers’ statements on stimulus, the week prior. Adding together metrics like market liquidity, options flow, and technical analysis, the picture turns murky; today’s most important obstacle in the S&P 500 is the $4,227.75 high volume area (HVNode). Trading above that level, expect sideways to higher. Remain below, volatility.

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.

“There’s probably going to be some back and forth here,” said Tracie McMillion, Wells Fargo Investment Institute head of global asset allocation strategy. “There is a lot of cash on the sidelines right now. Some of that is going to be earmarked to go into the markets, and we think the best place right now to be investing is in the equity markets.”

Graphic: S&P 500 is trading in the worst 2-week period of the year, via The Market Ear.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,227.75 HVNode puts in play the $4,235.00 Virgin Point of Control (VPOC). Initiative trade beyond the VPOC could reach as high as the $4,258.00 overnight high (ONH). 

Point of Control (POCs): POCs 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 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 $4,200.00 puts in play the $4,190.75 low volume area (LVNode). Thereafter, if lower, participants may look for a response at the $4,177.25 HVNode.

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 call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), yesterday. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside.

News And Analysis

Trade | EU industry hands Brussels headache over carbon border levy. (REU)

Economy | Tax policy may become a volatility trigger amid new debates. (BLK)

Economy | Merkel warns ‘gigantic sums’ needed to meet its challenges. (BBG)

Markets | EU launches an antitrust investigation into Google’s ad tech. (Axios)

Economy | ECB rate-cut bets fade into obscurity on new growth outlook. (BBG)

Commodity | Trafigura Group says oil could hit $100 a barrel next year. (BBG)

Economy | Even after tax hike, U.S. firms to pay less than foreign rivals. (REU)

What People Are Saying

Innovation And Emerging Trends

Innovation | Will automation cause an increase in the unemployment rate? (ARK)

Startups | Mexico becomes a hub of 150+ fintech startups in Latin America. (Entrepreneur)

FinTech | Digital asset trading venues on a rise amid regulation, innovation. (MM)

FinTech | Unpacking fintech investments by the top insurance companies. (Medici)

Markets | Inflation or deflation a big risk to equity, fixed income, and more? (ARK)

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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