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Commentary

Daily Brief For July 20, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Equity index futures trade higher. Volatility ebbs. 

  • Pandemic, U.S.-China tensions frighten.
  • Ahead: Building permits, housing starts.
  • Stocks, bonds stabilize. Crypto free-falls. 

What Happened: U.S. stock index futures auctioned higher overnight after violent trade the day prior. The volatility comes alongside renewed pandemic fears and geopolitical tensions.

Ahead, participants are looking forward to data on building permits, housing starts, and earnings.

Graphic updated 7:00 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index and Gamma. A positive Dark Pool Index reading is bullish. At the same time, the higher (lower) the gamma, the less (more) volatility. SHIFT Search data used for options activity. Note that options flow is sorted by the call premium spent; if green and more (less) positive then more (less) was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator.

What To Expect: As of 7:00 AM ET, Tuesday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open inside of prior range, suggesting a limited potential for immediate directional opportunity.

Adding, during the prior day’s regular trade, the worst case outcome occurred, evidenced by initiative trade below the $4,285.25 composite Point of Control (POC). This is significant because it denotes movement below the fairest price to do business since the June 20 swing low. Now, initiative buyers have a clear line in the sand – $4,285.25 – when it comes to making headway into overhead supply.

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.

Further, participants observed a rush into Treasuries pushing yields as low as 1.17% on the 10-year note, as well as a bid in the dollar. According to some outlets, there’s evidence the reflation trade is getting unwound. At the same time, coming into the equity market decline, the number of put options sold-to-open saw heightened levels, a potentially destabilizing force as associated hedging forces promote volatility.

With that, yesterday, participants bought calls and sold puts suggesting confidence in the low. 

Nonetheless, the reversal happened at a key technical level leaving behind minimal excess. Cognizant of the aforementioned, participants can trade from the following frameworks. 

Excess: A proper end to price discovery; the market travels too far while advertising prices. Responsive, other-timeframe (OTF) participants aggressively enter the market, leaving tails or gaps which denote unfair prices.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,285.25 MCPOC puts in play the $4,299.75 HVNode. Trade beyond the $4,299.75 HVNode could reach as high as the $4,334.25 spike base.

In the worst case, the S&P 500 trades lower; activity below the $4,285.25 MCPOC likely puts in play the $4,247.75 LVNode. Trade beyond the $4,247.75 LVNode could reach as low as the $4,229.00 VPOC and $4,224.25 low volume area (LVNode), the location of a minimal excess low.

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.

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

News And Analysis

Europe the first region to cross 50M COVID cases. (REU)

Companies could be afraid to give bullish outlooks. (CNBC)

Tokyo 2020 chief doesn’t rule out late cancellation. (CNBC)

Port Chief sees U.S. import surge lasting into 2022. (BBG)

Crypto slides with Yellen leading regulatory scrutiny. (FT)

China rejects hacking, accusing the U.S. of spying. (CNBC)

Brussels warns of threat posed by states’ defiance. (FT)

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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