Equity index futures diverge, trading sideways to lower with commodities.
- Themes: COVID-19, taper, infrastructure.
- Ahead: JOLTS, Fed speak, and earnings.
- Indices negate breakout and trade lower.
What Happened: U.S. stock index futures auctioned sideways to lower alongside talk of infrastructure and taper, as well as a resurgence in the COVID-19 coronavirus.
Adding, in research put out by Nordea, Andreas Steno Larsen said: “Powell hinted that the Fed has already reached one out of two targets and that full employment and inflation ‘moderately exceeding the 2% target’ are not prerequisites for a taper decision.”
Moreover, ahead is data on job openings, earnings, and Fed speak.
What To Expect: As of 6:30 AM ET, Monday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open on a small gap just below prior-range and -value, suggesting a potential for immediate directional opportunity.
Gap Scenarios: 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 best case outcome occurred – a balance area breakout – evidenced by trade above the $4,422.75 balance area high (BAH). This is significant because it marked a shift in tone (i.e., a transition from two-time frame trade, or balance, to one-time frame trade, or trend).
In such a case, the modus operandi shifts from responsive trade (i.e., fade the edges) to initiative trade (i.e., play the break).
A failure to expand range in the indexes – as evidenced by Friday’s lackluster breakout and early trade Monday – portends a rotation back toward the lower end of the balance, which corresponds with the $4,365.25 low volume area (LVNode) in the S&P 500 Future.
For today, participants can trade from the following frameworks.
In the best case, the S&P 500 trades sideways or higher; activity above the $4,422.75 BAH puts in play the $4,429.25 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,433.25 regular trade high (RTH High) and $4,438.50 fibonacci-derived price target.
In the worst case, the S&P 500 trades lower; activity below the $4,422.75 BAH puts in play the $4,417.25 low volume area (LVNode). Initiative trade beyond the LVNode could reach as low as the $4,411.00 untested point of control (VPOC) and $4,406.25 LVNode.
To note, the $4,406.25 level corresponds with a key anchored volume-weighted average price (VWAP), a metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.
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.
News And Analysis
Moody’s Weekly Market Outlook: Jobs and talk of tapering plans.
Oil tumbles to three-week low as virus spread menaces outlook.
Why it is too early to celebrate the blockbuster July jobs report.
The key lessons for traders from fund managers with Ken Katzen.
The financial fragility of U.S. households and businesses hit low.
A large loosening of consumer underwriting standards continues.
U.S. labor market job loss mismatch could persist through 2022.
China’s semiconductor self-reliance is posing overcapacity risks.
The technology upside from the COVID-19 coronavirus pandemic.
Homeowners have a tough time finding themselves underwater.
VC tear continues with $61B invested and 53 new unicorns born.
What People Are Saying
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.
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.