Market Commentary
Equity index futures higher overnight.
- Watching: Delta variant, HK warning.
- Light day ahead: OPEX, retail sales.
- Indices rotating, recover lost ground.
What Happened: U.S. stock index futures auctioned sideways to higher last night ahead of the Friday monthly options expiry (OPEX).
Key developments include a bump in the consumer price index (CPI), expectations the Biden administration will issue an advisory about the risks of doing business in Hong Kong, and the spread of COVID-19 variants.
Today, participants get data on retail sales, Fed speak, and earnings.
What To Expect: Friday’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 worst-case outcome occurred, evidenced by trade below the $4,357.75 low volume area (LVNode) pivot. This is significant because that pivot marked a break from a multi-session balance 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. Balance (Two-Timeframe Or Bracket): Rotational trade that denotes current prices offer favorable entry and exit. Balance-areas make it easy to spot a change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).
The downside resolve was the result of initiative sellers stepping in. For weeks, equity indices – particularly the S&P 500 and Nasdaq 100 – rose with tremendous speed, leaving behind low volume (poor) structures. Thereafter, responsive sellers surfaced, evidenced by sideways trade in the day’s prior. That said, weak breadth transpired into material price action with the Nasdaq 100 losing its relative strength – a deviation from prior trade – as it and the Russell 2000 sold into trend support. The S&P 500 and Dow Jones Industrial Average traded strong, in comparison, with the Dow positioned for a potential break higher.
All of this 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.”
Given the expectation for so-called unpinning in coming sessions, 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 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.
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.
In the worst case, the S&P 500 trades lower; activity below $4,357.75 puts in play the $4,346.75 high volume area (HVNode). Trade beyond $4,346.75 could reach as low as the $4,332.25 LVNode and $4,314.75 HVNode.
News And Analysis
Politics | U.S. warns investors on Hong Kong, citing China’s pressure. (BBG)
FinTech | Ethereum is the most important technology since the internet. (DDI)
Politics | Ocasio-Cortez warns progressives can ‘tank’ infrastructure bill. (BBG)
Markets | OPEC sees world oil demand reaching pre-pandemic levels. (REU)
Mobility | Biden looks into lifting Europe travel ban, a boost for airlines. (BBG)
Economy | Biden to reappoint Jerome Powell as Fed chair, some saying. (REU)
Markets | “Bad omen” for meme stocks as novice traders stop investing. (Axios)
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About
After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. Additionally, Capelj is a finance and technology reporter that’s interviewed leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, Canadian businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.
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.