Market Commentary
Equity index futures trade sideways to lower.
- OPEX and taper and COVID, oh my!
- Ahead is a light calendar. Fed speak.
- Positioning for directional movement.
What Happened: U.S. stock index futures auctioned sideways to lower overnight alongside news of faltering growth and Chinese regulatory curbs, ahead of a monthly options expiration (OPEX) and next week’s Federal Reserve event at Jackson Hole.
Ahead is Fed-speak by Rob Kaplan (11:00 AM ET).
What To Expect: As of 6:30 AM ET, Friday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open inside of prior-range and -value, suggesting a limited 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 $4,381.75 low volume area (LVNode), up to the $4,411.75 high volume area (HVNode).
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.
Despite trading higher yesterday, the S&P 500, in particular, validated the knee-jerk, albeit weaker, selling, after the release of Federal Open Market Committee (FOMC) minutes.
Given how far up into Wednesday’s range participants found acceptance, the spike base a few ticks below the $4,422.75 balance area high (BAH) is firmly in play today.
Spike Rules In Play: 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).
Further, the aforementioned trade is happening in the context of an inclination to taper stimulus in the face of a resurgent COVID-19 coronavirus. This theme’s implications on price are contradictory; to elaborate, “A strong job report in July was enough to move the Fed needle from a very early debate on tapering in June to a consensus on tapering this year in July,” Nordea strategists note.
“[A] tapering process should lead to 1) a stronger USD, 2) a flatter yield curve, 3) an expensive USD in the xCcy basis and 4) underperformance of small caps. The USD curve already started flattening markedly on the heels of the message delivered in June when Powell started hinting that tapering was actually debated within the Fed.”
Moreover, for today, given expectations of higher volatility and responsive trade, in light of an expected open in balance, participants may make use of the following frameworks.
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).
In the best case, the S&P 500 trades sideways or higher; activity above the $4,393.75 micro composite point of control (MCPOC) puts in play the $4,411.75 HVNode. Initiative trade beyond the HVNode could reach as high as the $4,422.75 BAH and $4,437.00 untested point of control (VPOC), repairing Thursday’s minimal excess high.
In the worst case, the S&P 500 trades lower; activity below the $4,393.75 MCPOC puts in play the $4,365.25 balance area low (BAL) and LVNode. Initiative trade beyond the $4,365.25 figure could reach as low as the $4,341.00 VPOC and $4,315.25 HVNode.
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. 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.
News And Analysis
Savings stash built up during pandemic mostly spent.
Elon Musk unveils a humanoid robot for boring work.
BlackRock: Dollar assets a way to manage volatility.
Emerging oil nations reject climate curb on exploring.
APAC corporate rating recovery may stall on COVID.
Surging delta cases reverse march back to the office.
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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
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