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Commentary

Daily Brief For September 7, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Equity index futures traded sideways to lower, in line with most commodities and bonds. Yields, the dollar, and VIX were higher.

  • Goldman revised down growth forecasts.
  • Ahead: Light calendar to base decisions.
  • Positioning risks mount case for volatility.

What Happened: U.S. stock index futures traded sideways to lower coming into this shortened week. 

Ahead is no data of interest.

Graphic updated 6:15 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) calculations are based on where the prior day’s reading falls with respect to the MAX and MIN of all occurrences available. A higher DIX is bullish. At the same time, the lower the GEX, the more (expected) volatility. SHIFT data used for S&P 500 (INDEX: SPX) options activity approximation. Note that options flow is sorted by the call premium spent; if more positive then more was spent on call options. Breadth reflects a reading of the prior day’s NYSE Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index (INDEX: VIX) from 0-100.

What To Expect: As of 6:15 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 and -value, suggesting a limited potential for immediate directional opportunity.

Adding, during Friday’s regular trade, on lackluster intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by sideways trade above $4,527.75, a prominent high volume area.

This is significant because sideways to higher trade (i.e., balance) marks acceptance, or a willingness to transact at higher prices after a v-pattern recovery, above the key 50-day simple moving average.

Balance (Two-Timeframe Or Bracket) Is The Status Quo: 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). 

Modus operandi is responsive trade (i.e., fade the edges), rather than initiative trade (i.e., play the break).

V-Pattern: A pattern that forms after a market establishes a high, retests some support, and then breaks above said high. In most cases, this pattern portends continuation.
Graphic: S&P 500 maintaining prices above the 50-day simple moving average. This moving average can be looked at as a key dynamic level on any move lower. Losing that particular level likely changes the tone.

Further, the aforementioned trade is happening in the context of peak growth and a moderation in the economic recovery, as well as non-seasonally aligned inflows, impactful options market dynamics, divergent sentiment, and fears of a mid-cycle transition.

Graphic: Bank of America Corporation (NYSE: BAC) graphic via The Market Ear. All-time highs in the equity markets alongside all-time high equity allocations.

The implications of these themes on price are contradictory

That’s according to Goldman Sachs Group Inc (NYSE: GS) economists who revised lower their forecast for growth in the U.S. economy citing the COVID-19 delta variant, fading fiscal support, supply chain disruptions, and a switch in demand to services. 

“The hurdle for strong consumption growth going forward appears much higher: the Delta variant is already weighing on Q3 growth, and fading fiscal stimulus and a slower service-sector recovery will both be headwinds in the medium term,” said Goldman Sachs’ Ronnie Walker.

Among other risks include fragility with respect to “the current combination of weak put flows and large customer vanna exposure” which, according to SqueezeMetrics, puts us “a hair’s breadth away from some of the most consistently bearish and volatile behavior in the S&P 500.”

In simpler terms, as SqueezeMetrics summarizes, “[p]eople pretty much stopped buying S&P 500 puts [last] week. At the same time, people are overexposed to changes in VIX, and will be hurt more than usual if VIX starts moving up. Historically, this means SPX down, VIX up.”

I also encourage a read of the Weekly Brief for Saturday, September 4, which covered some market risks ahead.

Given the big picture context (i.e., status quo – higher prices – in the face of volatility risks) participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,527.75 high volume area (HVNode) pivot puts in play the $4,550.00 overnight high (ONH). Initiative trade beyond the ONH could reach as high as the Fibonacci extensions at $4,556.25 and $4,592.25.

In the worst case, the S&P 500 trades lower; activity below the $4,527.75 HVNode puts in play the $4,510.00 regular trade high (RTH High). Initiative trade beyond the RTH High could reach as low as the $4,495.00 and $4,481.75 HVNodes.

Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

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.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:15 AM ET.

News And Analysis

Soros calls BlackRock China investment a tragic mistake.

GM reshuffling production plans as chip shortage persists.

London taking aim at New York with 5-year financial plan.

TP ICAP slams work from home as it hampers risk-taking.

Global growth rebound solidifies while risks broaden away.

Deutsche Telekom grows bet on U.S. with SoftBank deal.

Bitcoin facing big test as El Salvador makes it legal tender.

Facebook admits “trust deficit” as it looks to launch wallet.

Without help for oil producers, net-zero is a distant dream.

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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