Categories
Commentary

Daily Brief For August 16, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Equity index futures traded lower overnight.

  • Geopolitical tensions and growth fears.
  • Ahead is some data on manufacturing.

What Happened: U.S. stock index futures auctioned lower overnight alongside moderating growth and nervousness with respect to stimulus, COVID-19, and geopolitical developments.

Ahead is data on the Empire State manufacturing index (8:30 AM ET).

Graphic updated 6:30 AM ET. Sentiment Risk-Off if expected /ES open is below the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

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 outside of prior-range and -value, suggesting a potential for immediate directional opportunity.

Adding, during the prior day’s regular trade, on weak intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by trade above the $4,453.75 high volume area (HVNode). This is significant because this trade validated a move up away from value, in the face of light volume, poor structure, and unsupportive breadth.

Gap Scenarios In Play: 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.

Further, the aforementioned trade is happening in the context of geopolitical concerns, peak growth, moderating inflation, renewed fiscal stimulus efforts, and increased odds of Fed tapering early next year. The implications of these themes on price are contradictory; to elaborate, as Nordea strategists note, “Profit margins could come under pressure given rising input/labour costs and decelerating economic growth. Also, excess liquidity has started to fall, which historically has meant a contraction in P/E ratios, at a time when the share of unprofitable companies in the Russell 2000 is the highest ever at 42%.”

Moreover, for today, given expectations of higher volatility and initiative trade, participants may make use of the following frameworks.

Initiative Buying (Selling): Buying (selling) within or above (below) the previous day’s value area.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,447.75 HVNode puts in play the $4,455.75 HVNode. Initiative trade beyond the $4,455.75 HVNode could reach as high as the $4,463.25 minimal excess high and $4,470.75 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,447.75 HVNode puts in play the $4,439.00 untested point of control (VPOC). Initiative trade beyond the $4,439.00 VPOC could reach as low as $4,430.00 – a visual low likely generated by short-term (i.e., technically driven) participants who may be unable to defend retests – and the $4,422.75 balance area high (BAH).

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.

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.

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.

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). 
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:10 AM ET.

News And Analysis

The Taliban is once again the dominant force in Afghanistan.

Democrats’ debt dare risks shutdown fights with no easy out.

The world’s third-busiest port still remains partially shut down.

Spending packages would reduce social, environmental risks.

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.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s