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Commentary

Daily Brief For June 23, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Equity index futures attempt to balance after strong recovery.

  • Fed’s Powell: Inflation is transitory.
  • Ahead: Home sales, CA balances.
  • Indexes traded sideways to higher.

What Happened: U.S. stock index futures auctioned sideways to higher as inflation concerns eased.

On Tuesday, Federal Reserve chair Jerome Powell said the bank would not raise rates while reiterating price increases are temporary.

In a statement, BlackRock strategists note: “We believe the Fed’s new outlook will not translate into significantly higher policy rates any time soon. This, combined with the powerful restart, underpins our pro-risk stance.”

Ahead is data on U.S. home sales and the current account balance. Tomorrow, the Bank of England issues its interest rate decision and the Federal Reserve will release the results of bank stress tests.

Graphic updated 7:00 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 best case outcome occurred, evidenced by initiative trade beyond the $4,235.00 Virgin Point of Control (VPOC).

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.

As noted yesterday, trading above the $4,227.75 high volume area (HVNode) – the site where initiative selling accelerated the week prior – was a very positive outcome. Now, any participant that sold short, from that breakdown, is in a losing position. On the other hand, both Monday and Tuesday’s multi-distribution profiles, in conjunction with market liquidity metrics, denote short-covering activity, not substantive buying. Such structures often offer little-to-no support on liquidations. Therefore, participants ought to beware of an increased potential to violently backfill and repair.

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.

That dynamic, with what is historically the weakest 2-week period of the year, warns participants should not be surprised if indexes trade sideways to lower, into the end of the week. Positioning metrics support this notion, too.

Thereafter, seasonality flips, becoming most positive for the Nasdaq 100.

Graphic: Nasdaq 100 nears its best period of the year, via The Market Ear. Inflows are in agreement, too.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,229.00 VPOC 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 Fibonacci-derived price targets near $4,294.00. 

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 the $4,229.00 VPOC puts in play the HVNodes at $4,213.00 and $4,177.25.

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). Note the zone of overlapping Fibonacci targets in the Nasdaq 100.
Graphic: SHIFT search suggests participants were committing the most capital to 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. Noting, in comparison to the day prior, there was interest in farther-dated put strikes at and above current prices. This may denote opportunistic hedging or speculation on the downside. 

News And Analysis

Politics | President Biden pushes for high-level meetings with Beijing. (FT)

Politics | Russia fires warning shots at British warship in Black Sea. (BBG)

Trade | Warehouse rents surged on bidding wars for scarce spaces. (WSJ)

Markets | Nonbank lenders are quickly dominating mortgage market. (WSJ)

Energy | Physical oil market gains suggest more support for the rally. (REU)

Economy | The most unexpected pandemic winner is small business. (Axios)

Economy | 2021 corporate defaults nearly 60% lower than last year. (S&P)

What People Are Saying

Innovation And Emerging Trends

Analysis | Inner Game with Steve Cohen. Lifting the veil on hedge funds. (SR)

Startups | Detroit turns into a startup ecosystem, great for entrepreneurs. (BZ)

FinTech | Decentralized finance is ready to disrupt financial technology. (NDAQ)

Work | The world’s financial centers are struggling back to their offices. (BBG)

Tech | Quantum data link established between two distant Chinese cities. (BBG)

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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