Categories
Commentary

Daily Brief For July 2, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures diverge in their attempt to discover higher prices.

  • Conflicting narratives. Only price pays.
  • Ahead: NFP, trade balance, and more.
  • Indices trying to establish value higher.

What Happened: U.S. stock index futures auctioned sideways to higher ahead of the holiday weekend. 

The Nasdaq firmed, relative to its peers, after brief intraday weakness, yesterday. The S&P 500 discovered even higher prices, while the Dow Jones Industrial Average came into technical resistance and held. Though the Russell 2000 was lower, this morning, it has been building energy for a break.

Before the open, participants will have data on June non-farm payrolls. Later releases include the May U.S. trade balance, in addition to factory and durable good orders.

Graphic updated 8:05 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,285.00 Point of Control (POC). Overnight, participants continued the discovery process, establishing a new overnight all-time high (ONH) at $4,318.25 (which was still intact at the time of this writing 7:50 AM ET). 

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

Further, this relentless uptrend comes ahead of data key in gauging the economic recovery; this morning’s payroll release will be a true test of optimism, providing participants more information to either support (or not support) this most recent directional move on narrowing breadth and tapering volumes ahead of the holiday weekend.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,311.50 high volume area (HVNode) puts in play the $4,318.25 ONH. Thereafter, if higher, participants may look to the Fibonacci price extensions at $4,236.25 and $4,337.75 for potential exhaustion. 

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 the $4,311.50 HVNode puts in play the $4,299.00 and $4,285.00 POCs. Thereafter, if lower, the $4,256.75 HVNode may come into play as a level where responsive buyers surface.

To note, it’s Friday, a good day to limit expectations, overall.

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 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. Also, there was a meaningful bid in longer-dated puts on the S&P 500 and Nasdaq 100. This dynamic suggests participants, despite their commitment to higher prices, are hedging against near-term risks, like the Jackson Hole Economic Symposium.

News And Analysis

Economy | U.S. payrolls jump 850K in June, versus EST: 720K. (BBG)

Economy | ECB’s Lagarde warns that recovery remains fragile. (REU)

Markets | Robinhood seizes the meme-stock moment with IPO. (BBG)

Economy | Treasury yields signal investors’ waning exuberance. (WSJ)

Markets | 15% minimum corporate tax will have a limited impact. (Axios)

COVID | J&J shot shows strong response against Delta variant. (REU)

What People Are Saying

Innovation And Emerging Trends

Mobility | Rumors of the demise of cars have been exaggerated. (BBG)

FinTech | Fintechs asked CFPB for guidance on AI, ML, LendTech. (BD)

Markets | The crypto basis trade status after May retail liquidations. (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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