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Commentary

Daily Brief For July 6, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Equity index futures sideways in overnight trade.

  • Commodities firm up. Oil is stretched.
  • Ahead: PMI, ISM, employment trends.
  • NDX firmed relative to SPX, RUT, DJI.

What Happened: U.S. stock index futures diverged overnight. 

Participants explored higher prices in both the S&P 500 and Nasdaq 100. The Dow Jones Industrial Average and Russell 2000 traded weak, within prior range. 

Today, participants will receive PMI, employment trend, and ISM non-manufacturing data. 

Graphic updated 7:05 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 activity above the $4,311.50 high volume area (HVNode), up to $4,337.75, a Fibonacci-derived price target. 

Initiative Buying: Buying within or above the previous day’s value area.

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.

Sideways trade overnight comes after a rapid move higher on narrowing breadth and tapering volumes. 

Graphic: Breadth metrics from JPMorgan Chase & Co (NYSE: JPM), via The Market Ear.

With that, strategists at JPMorgan Chase & Co (NYSE: JPM) suggest stretched sentiment, positioning, and technical conditions have normalized with economic activity projected to stay significantly above trend. Goldman Sachs Group Inc (NYSE: GS) takes a bit of a less optimistic view; “Expectations of higher interest rates and higher corporate tax rates by year-end are the primary reasons we forecast that the S&P 500 will trade sideways during the next six months,” said David Kostin, chief US equity strategist for Goldman Sachs.

Goldman’s year-end price target for the S&P 500 sits at $4,300.00, a tad lower than where the index is today. To note, however, earnings estimates, the inventory positioning of participants, as well as early July seasonality metrics support the strong near-term performance.

Graphic: Earnings estimates from Jefferies, via The Market Ear

Given that big picture context, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,323.00 Point of Control (POC) puts in play the developing ledge at $4,348.25, an overnight high (ONH). Initiative trade beyond the ONH could reach as high as the $4,357.50 Fibonacci-derived price target.

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.

Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack the confidence to continue the discovery process. The ledge will either hold and force participants to liquidate (cover) their positions, or crack and offer support (resistance).

In the worst case, the S&P 500 trades lower; activity below $4,323.00 puts in play the $4,299.00 POC. Initiative trade beyond the POC could reach as low as the $4,285.00 micro-composite POC and $4,263.25 low volume area (LVNode). 

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
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), last week. 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 | Credit Conditions Q3 2021 – Reopening, Reflation, Reset. (S&P)

Markets | Stocks surge, comfort grows as the market fear gauge falls. (S&P)

Energy | Three scenarios for OPEC+, and the likely ones are bearish. (REU)

Markets | Chinese ride-hailing app Didi forced off of app stores in China. (REU)

COVID | Pfizer vaccine less effective against Delta variant, study finds. (FT)

Politics | Biden declares success in beating pandemic in July 4 speech. (BBG)

Politics | Global corporate tax overhaul faces rocky road to completion. (REU)

Markets | June jobs report was exactly what the markets wanted to get. (Axios)

What People Are Saying

Innovation And Emerging Trends

FinTech | Mortgage-focused startup Blend seeks $4B valuation in IPO. (REU)

FinTech | Turkish broker takes shot at financial titans with product focus. (BZ)

Economy | MMT economist on why China should boost fiscal spending. (BBG)

FinTech | Booking.com announces creation of new internal fintech unit. (Finextra)

M&A | JPMorgan’s big buying spree is Jamie Dimon’s busiest in years. (FT)

FinTech | Fidelity and BlackRock lead fintech startup’s $600M funding. (BBG)

Crypto | BIS finds that crypto investment doesn’t require special policy. (Block)

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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