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Commentary

Daily Brief For September 8, 2021

Daily commentary for U.S. broad market indices.

Abstract: Status quo briefly disrupted after equity index futures traded lower overnight. 

Alongside today’s light events calendar, participants ought to be most concerned with positioning risks and calls by large investment banks for cautiousness. A key pivot for today’s trade in the S&P 500 stands at $4,510.00.

Given the expected open, there may be limited potential for immediate directional opportunity.

Market Commentary

Equity index futures trade lower with yields, bitcoin, and copper. Gold, oil, bonds, VIX higher.

  • Big banks revised down growth forecasts.
  • Ahead: Job openings, Beige Book, credit.
  • Positioning risks mount case for volatility.

What Happened: U.S. stock index futures auctioned sideways to lower overnight alongside calls by large investment banks for cautiousness amidst outsized risks.

Ahead is data on job openings (10:00 AM ET), Beige Book (2:00 PM ET), and consumer credit (3:00 PM ET).

Graphic updated 6:30 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 6:30 AM ET, Wednesday’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 divergent market liquidity metrics, the worst-case outcome occurred, evidenced by trade to the low end of a recent consolidation area or balance. 

Overnight, despite the low end of that balance being briefly pierced, responsive buying surfaced pushing the S&P 500 back into Tuesday’s range. 

Balance-Break Scenarios In Play: A change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend) may occur.

Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area. Rejection (i.e., return inside of balance) portends a move to the opposite end of the balance.

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.

The implications of these themes on price are contradictory

To elaborate, Morgan Stanley (NYSE: MS) and Citigroup Inc (NYSE: C) – in addition to Goldman Sachs Group Inc (NYSE: GS), yesterday – are cautioning investors about equity outlooks. Of concern, in particular, is a rise in cases of the delta variant, tensions between inflation expectations and yields, as well as seasonality. 

Among other risks, 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.”

Moreover, for today, participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,510.00 regular trade high (RTH High) puts in play $4,526.25, a prominent high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,550.00 overnight high (ONH) and $4,556.25 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,510.00 RTH High puts in play the $4,495.00 HVNode. Initiative trade beyond the $4,495.00 HVNode could reach as low as the $4,481.75 HVNode and $4,454.25 LVNode.

We note that, as of 6:30 AM ET, prices are back in the most recent consolidation after finding responsive buyers at the overnight low (ONL) which corresponded with an anchored volume-weighted average price (AVWAP), 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. Losing that ONL changes the tone, obviously.

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

Ray Dalio says China opportunities can’t be neglected.

Delta variant is slowing reversal of some rating actions.

Rates stagnate; mortgage demand at lowest in months.

Investors should watch closely for peak in profit margin.

Weak jobs data could derail Fed’s bond tapering plans.

Coinbase fell after SEC plans to sue over new product.

Global mobility near post-pandemic high despite delta.

U.S. hits 75% of adults with at least one vaccine dose.

Evergrande dollar bonds fall after suspended payment.

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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