Equity index futures diverge, auction within prior range.
- A slow start to a rather busy week.
- Market is meaningfully overvalued.
- Ahead: Fed speak, manufacturing.
- /NQ firmed and the /ES backed off.
What Happened: U.S. stock index futures traded sideways to lower, ahead of what’s expected to be a light day.
Further, President Biden is looking to push along his infrastructure plan and the U.K. cracked down on cryptocurrency exchanges.
On the calendar is Dallas Fed Manufacturing Activity. Also, John Williams, Randal Quarles, and Tom Barkin, of the Federal Reserve, are to speak.
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. This likely limits the potential for immediate directional opportunity.
Adding, alongside positive economic and political developments, U.S. equity index futures traded higher, last week, in conjunction with narrowing breadth, weaker seasonality, and other things.
Moreover, last night, the S&P 500 established a new overnight high (ONH) before trading back into range. Anchoring a Volume Weighted Average Price (VWAP) at that peak suggests the average overnight seller is in a winning position. Should the day timeframe find acceptance above that VWAP (yellow in color on the below chart), that is not a positive for those weak-handed overnight players that tend to trade in small size.
Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process. 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 $4,267.00 Point of Control (POC) puts in play the $4,278.75 ONH. Initiative trade beyond the ONH could reach as high as $4,294.75, a Fibonacci-derived price target.
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 lower; activity below the $4,267.00 POC puts in play the $4,257.00 high volume area (HVNode), first. Failure to respond leaves the $4,248.25 low volume area (LVNode) exposed. Trade beyond that signpost is concerning; in such a case, a test of the $4,239.75 micro-composite point of control (MCPOC) and $4,229.00 VPOC is expected.
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.
Even lower? Yikes. Look for responses at the $4,213.00 and $4,200.25 HVNodes. The $4,200.25 signpost corresponds with an important 50% Fibonacci retracement and LVNode boundary.
News And Analysis
Economy | Support doesn’t provide a meaningful boost until mid-decade. (Moody’s)
Markets | Intel CEO says the chip shortage will hit bottom in second half. (BBG)
Economy | The U.S. cannot afford another housing market ‘boom and bust’. (FT)
Economy | Bank of Russia to consider key interest rate increase in July. (BBG)
Markets | Johnson & Johnson to pay $260M on claims it sparked epidemic. (Axios)
Politics | The last-and only-foreign scientist in the Wuhan lab speaks out. (BBG)
Markets | Tesla dealt a blow as almost all cars in China need a safety fix. (BBG)
Politics | U.S. warplanes strike against an Iran-backed militia in Iraq, Syria. (REU)
Energy | The U.S. shale industry tempers output even as oil price jumps. (REU)
What People Are Saying
Innovation And Emerging Trends
Work | UBS to let two-thirds of employees adopt permanent hybrid work. (BBG)
FinTech | CME joins battle for retail bond traders with new small products. (BBG)
Energy | Japan allows restarts of nuclear reactors older than 40 years. (Nikkei)
Tech | Study finds China’s cyber power at least a decade behind the U.S. (FT)
FinTech | Chaka first startup to receive SEC license for trading in Nigeria. (TC)
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.
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.