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Commentary

Daily Brief For July 15, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Equity index futures sideways to lower overnight.

  • A $3.5T spending bill is gaining traction.
  • Claims, earnings, Fed speak, and more.
  • Indices diverge; breadth metrics weaken.

What Happened: U.S. stock index futures resolved lower after underlying breadth metrics failed to support further price discovery. 

Such lackluster trade comes ahead of a few key developments, most important of which include testimony by Federal Reserve chair Jerome Powell, employment data, earnings, industrial and manufacturing numbers, as well as the July 16 monthly options expiration.

Graphic updated 7:50 AM ET. See here for more on the Dark Pool Index and Gamma. Check out SHIFT search for data on the options activity.

What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open on a small gap below prior-range and -value. This suggests an increased potential for immediate directional opportunity.

Balance-Break and/or Gap Scenarios: Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area.

Gaps ought to fill quickly. Should they not, that’s a signal of strength; do not fade. Leaving value behind on a gap-fill or failing to fill a gap (i.e., remaining outside of the prior session’s range) is a go-with indicator.

Auctioning and spending at least 1-hour of trade back in the prior range suggests a lack of conviction; in such a case, do not follow the direction of the most recent initiative activity.

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by a failure to expand range above the Volume Weighted Average Price (VWAP) anchored from the CPI release (blue in color on the below profile graphic). Instead, on very slow tempo, indexes traded lower in the face of extremely poor breadth.

Graphic: Equity index leaders rose in price as internal divergences – like the ratio of advancers to decliners – grew. Noting a bigger divergence in internals tracking Nasdaq issues. 

As stated yesterday, the push-pull and divergence comes ahead of the options expiration (OPEX) cycle which starts on the third Friday of each month (July 16). Associated hedging forces make it so there’s more liquidity and less movement. 

After OPEX, according to SpotGamma, “the market tends to experience its largest intraday volatility which corresponds to the reduction in large options positions, and the hedging associated with them.”

Knowing the above, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,357.75 low volume area (LVNode) pivot puts in play the $4,371.00 untested Point of Control (POC). Thereafter, if higher, participants can look for responses at the $4,384.50 regular trade high (RTH High) and $4,398.50 Fibonacci price extension.

In the worst case, the S&P 500 trades lower; activity below $4,357.75 puts in play the $4,343.25 HVNode. Trade beyond $4,343.25 could reach as low as the HVNodes at $4,314.75 and $4,297.00.

Significance Of Prior ATHs, ATLs: Prices often encounter resistance (support) at prior highs (lows) due to the supply (demand) of old business. These areas take time to resolve. Breaking and establishing value (i.e., trading more than 30-minutes beyond this level) portends continuation.

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.

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.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.

News And Analysis

Politics | Biden agenda gains Senate ground with big hurdles remaining. (BBG)

Economy | Restaurants signing most new retail leases as rents plummet. (CNBC)

Markets | Executive orders on competition and policy tightening impact. (Moody’s)

Economy | Jerome Powell dismisses claims of complacency on inflation. (FT)

Politics | China has accused Biden administration of hurting global trade. (Axios)

Markets | Reddit traders are upending the world of credit investing, also. (BBG)

Markets | No market breadth, no problem as Faangs lift S&P 500 higher. (BBG)

Economy | CEOs speak on elevated levels of inflation which may persist. (Axios)

Economy | China warns economic uncertainty despite moderate recovery. (FT)

What People Are Saying

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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