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Commentary

Daily Brief For January 11, 2023

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 7:00 AM ET. Sentiment Risk-On if expected /ES open is above 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. The CBOE VIX Volatility Index (INDEX: VVIX) measure reflects the total attractiveness of owning volatility.

Fundamental

Ex-Federal Reserve (Fed) trader Joseph Wang said the 2020s credit boom is not over.

Per Wang’s analysis, there was “a boom in lending of epic proportions.” Bank loans totaled $1.2 trillion in 2022, while credit unions lent $0.23 trillion, about three times that of recent years.

Loan growth when rates are high is, in part, the result of the Fed’s post-GFC changes to transmitting monetary policy; “Higher rates mechanically raise net interest margins as funding costs are little changed.”

The banks’ strong position, coupled with households’ strong financial positions (i.e., higher net worth, favorable debt profile with the bulk of mortgages taken at low rates, and strong labor market) creates the context for credit growth amidst rising rates.

Graphic: Retrieved from @ginamartinadams via Daily Chartbook. “US households aren’t drawing on savings to support spending.”

Though this money must be repaid, borrowers “have $1.5 trillion more in purchasing power,” and this credit cycle “can last for years,” just as “[t]he housing led boom of the early 2000s continued for years even as rates rose.”

Graphic: Retrieved from CME Group Inc’s (NASDAQ: CME) FedWatch Tool. Rates are likely to rise.

Therefore, “the credit boom … should sustain demand for the coming years.” More detail on other contexts and implications in the coming letters. Have a great day!

Graphic: Retrieved from Joseph Wang via Federal Reserve Economic Data (FRED).

Technical

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

Our S&P 500 pivot for today is $3,955.00. 

Key levels to the upside include $3,965.25, $3,973.25, and $3,979.75.

Key levels to the downside include $3,943.25, $3,926.25, and $3,917.00.

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. 

As a disclaimer, the S&P 500 could trade beyond the levels quoted in the letter. Therefore, you should load the above link on your browser for more relevant levels.

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.

CPOCs: Denote areas where two-sided trade was most prevalent over all sessions. Participants will respond to future tests of value as they offer favorable entry and 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.

MCPOCs: Denote areas where two-sided trade was most prevalent over numerous (but not all) sessions. Participants will respond to future tests of value as they offer favorable entry and exit.


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.

Calendar

You may view this letter’s content calendar at this link.

Disclaimer

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

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