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Commentary

Daily Brief For December 5, 2022

Daily commentary for U.S. broad market indices.

Physik Invest’s Daily Brief is read by thousands of subscribers. You, too, can join this community to learn about the fundamental and technical drivers of markets.

Graphic updated 7:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of this letter. Levels may have changed since initially quoted; click here for the latest levels. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) with the latter calculated 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. Click to learn the implications of volatility, direction, and moneyness. 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.

Administrative

Due to the writer’s travel, from 12/6 to 12/16 there will be little or no commentary. If any queries, ping renato@physikinvest.com or Renato Capelj#8625 on Discord.

Positioning

Thanks for the feedback on the December 1, 2022 letter, everyone! Here is a wordy response I sent to one subscriber on an example trade that was detailed.

“No worries on not taking the NDX [Ratio Spread] trade. So long as you know what to look for and how to enter the trade (w.r.t time, width, size), you will find opportunities every week!

My general rules of thumb [for Ratio Spreads] are as follows:

  1. 10-15 days to expiry at a maximum in most cases.
  2. Does the spread price for a credit to close if [you move it to current prices or ATM]?
  3. In the size that you enter the trade, do you have enough capital to maintain the position (i.e., do you exceed the margin requirement if the market moves to that spread)?

Those are a few quick tests you can make before entering. Just price the spread at the money. If it’s a credit to close, the test passed! If the margin is not exceeded, the test is passed! This is my go-to strategy, particularly when I am unsure of what the next market move will be.

If up, that’s great! I may make money. If lower, no problem! I did not lose that much.

On my desk at all times I have:

  • Dynamic Hedging (Taleb)
  • The Rise of Carry (Lee et al)
  • Positional Option Trading (Sinclair)
  • The Second Leg Down (Krishnan)
  • Exotic Options and Hybrids (Bouzoubaa et al)

Separately, here’s an in-depth Ratio Spread case study published a few months back.

Take care and see you soon!

Technical

As of 7:30 AM ET, Monday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, is likely to open in the lower part of a negatively skewed overnight inventory, inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

Our S&P 500 pivot for today is $4,049.25. 

Key levels to the upside include $4,069.25, $4,084.25, and $4,109.75. 

Key levels to the downside include $4,024.00, $4,000.25, and $3,961.00.

Click here to load today’s key levels into the web-based TradingView platform. All levels are derived using the 65-minute timeframe. New links are produced, daily.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.

Definitions

Volume Areas: Markets will build on areas of high-volume (HVNodes). Should the market trend for long periods of time, it will be identified by low-volume areas (LVNodes). LVNodes denote directional conviction and ought to offer support on any test.

If participants auction and find acceptance in an area of a prior LVNode, then future discovery ought to be volatile and quick as participants look to HVNodes for favorable entry or exit.

POCs: Denote areas where two-sided trade was most prevalent in a prior day session. Participants will respond to future tests of value as they offer favorable entry and exit.

Volume-Weighted Average Prices (VWAPs): 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.


About

In short, an economics graduate working in finance and journalism.

Capelj spends most of his time as the founder of Physik Invest through which he invests and publishes daily analyses to subscribers, some of whom represent well-known institutions.

Separately, Capelj is an equity options analyst at SpotGamma and an accredited journalist interviewing global leaders in business, government, and finance.

Past works include conversations with investor Kevin O’Leary, ARK Invest’s Catherine Wood, FTX’s Sam Bankman-Fried, Lithuania’s Minister of Economy and Innovation Aušrinė Armonaitė, former Cisco chairman and CEO John Chambers, and persons at the Clinton Global Initiative.

Contact

Direct queries to renato@physikinvest.com or Renato Capelj#8625 on Discord.

Disclaimer

Do not construe this newsletter as advice. All content is for informational purposes.

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