Market Commentary
Equity index futures, commodities, and yields are all lower.
- COVID resurgence, geopolitical tensions.
- Ahead: Light day with only earnings data.
- Stock indices are lower; RUT leads move.
What Happened: U.S. stock index futures auctioned lower overnight alongside news of COVID-19 resurgence and escalating tensions between China and NATO allies.
This trade comes ahead of a relatively light day in terms of releases. Today, participants will only get data on company earnings.
What To Expect: As of 6:45 AM ET, Monday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open outside of prior-range and -value, suggesting an increased potential for 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 spike from value.
Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).
This comes as Morgan Stanley (NYSE: MS) believes downside risks are compounded by equity and bond positioning, low short interest, and the involvement of systemic strategies which could intensify a sell-off.
Add to that last week’s monthly options expiry (OPEX), participants could be in for a volatile day as the market enters into so-called a short-gamma environment; in such a case, the opposing side of options trades hedge exposure by buying into strength and selling into weakness, exacerbating volatility.
Options Expiration (OPEX): Option expiries mark an end to pinning (i.e, the theory that market makers and institutions short options move stocks to the point where the greatest dollar value of contracts will expire worthless) and the reduction dealer gamma exposure.
Further, for today, participants can trade from the following frameworks.
In the best case, the S&P 500 trades sideways or higher; activity above the $4,285.75 micro-composite POC puts in play the $4,297.00 HVNode. Initiative trade beyond the $4,297.00 HVNode could reach as high as the $4,314.75 HVNode and $4,334.25 spike base.
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.
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 $4,285.75 puts in play the $4,273.25 HVNode. Trade beyond the $4,273.25 HVNode could reach as low as the $4,256.75 and $4,239.25 HVNode.
News And Analysis
Robinhood aims for up to $35B valuation in a U.S. IPO. (REU)
The CPI has not altered the Fed’s narrative on inflation. (Moody’s)
OPEC+ agrees oil supply boost after new compromise. (REU)
U.S., U.K. allies blame Chinese government for a hack. (BBG)
Infrastructure bill drops tax enforcement, Senator says. (BBG)
Florida leads U.S. in COVID cases amid variant surge. (Axios)
What People Are Saying
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. Some of his biggest works include interviews with 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.
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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