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Commentary

Daily Brief For August 3, 2021

Daily commentary for U.S. broad market indices.

Editor’s Note: On Thursday (8/5) and Friday (8/6) there will be no Daily Brief newsletter. Additionally, there will be no Weekly Brief Sunday (8/8), either. All commentaries to resume August 9, 2021.

Market Commentary

Equity index futures move higher, back into range. 

  • News: China, COVID-19, and crypto.
  • Ahead: Data on orders, vehicle sales.
  • Responsive trade remains dominant.

What Happened: U.S. stock index futures auctioned higher amid news surrounding China, COVID-19, and cryptocurrency regulation.

Adding, Goldman Sachs Group Inc (NYSE: GS) turned slightly bearish on U.S. growth; “[e]xpectations of higher interest rates and higher corporate tax rates by year-end are the primary reasons [to] forecast that the S&P 500 will trade sideways,” strategists noted recently.

Ahead is data on factory and core capital goods orders, as well as motor vehicle sales.

Graphic updated TIME 6:40 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 6:40 AM ET, Tuesday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open on a small gap, inside of balance and prior-range, suggesting a low potential for immediate directional opportunity.

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).

Adding, during the prior day’s regular trade, the worst case outcome occurred, evidenced by trade below the $4,392.75 micro composite point of control (MCPOC), to the $4,381.75. This is significant because the MCPOC (which corresponds with an important anchored volume-weighted average price or VWAP) denotes the fairest price to do business on a bigger timeframe. 

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.

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.

Adding, the move lower, into yesterday’s settlement, was not supported by value or strong metrics with respect to breadth and market liquidity. 

Breadth at the exchange level was neutral with a minuscule inflow into the stocks that were down, versus those that were up. Similarly, the cumulative volume delta – a measure of buying and selling power as calculated by the difference in volume traded at the bid and offer – diverged from price.

Graphic: Market Internals (Advance/Decline, Up-Volume/Down-Volume, Tick) displayed as Peter Reznicek at ShadowTrader teaches
Graphic: Market liquidity and cumulative volume delta (CVD) for the SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index.

To put it differently, the market is in balance, and the modus operandi in such case (as happened Monday) is responsive trade (i.e., fade the edges), rather than initiative trade (i.e., play the break).

Given the context, for today, participants may trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,392.75 MCPOC puts in play the $4,407.00 POC. Initiative trade beyond the POC could reach as high as the $4,419.00 HVNode and $4,428.25 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,392.75 MCPOC puts in play the $4,381.75 LVNode. Initiative trade beyond the LVNode could reach as low as the $4,370.50 minimal excess low and $4,353.00 POC.

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.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Graphic updated 6:40 AM ET.

News And Analysis

‘China model’ eyeing prosperity without democracy.

Axios: Markets could be fine with the Fed tapering.

The new SEC boss looks to more crypto oversight.

Biden Fed pick pits Powell against regulatory push.

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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