Categories
Commentary

Daily Brief For October 29, 2021

Abstract

In sync with bonds, equity index futures were sideways to lower. Commodities were mixed. Volatility expanded.

  • Economic growth rate slows 2%.
  • Fed may not follow counterparts.
  • Increased prospects for volatility.

What Happened

U.S. stock index futures auctioned sideways to lower overnight, within the prior day’s range, as investors looked to price in emerging dynamics with respect to slower growth and inflation, as well as the risks of a taper in asset purchases and a hike in interest rates. 

Ahead is data on income, consumer spending, core inflation, and the employment cost index (8:30 AM ET), as well as Chicago PMI (9:45 AM ET), consumer sentiment, and inflation expectations (10:00 AM ET).

Graphic updated 7:00 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 the following section. Levels may have changed since initially quoted; click here for the latest levels. 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. Learn the implications of volatility, direction, and moneyness. SHIFT data used for S&P 500 (INDEX: SPX) options activity. 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

Action: During the prior day’s regular trade, on supportive intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by a spike above current S&P 500 (INDEX: SPX) (ETF: SPY) (FUTURE: /ES) prices.

Intent: The spike marked a willingness to continue the trend.

Validation: Overnight, Thursday’s end-of-day price discovery, away from value, was not validated; after two weeks of markup, participants are likely basing ahead of new information.

Graphic: Supportive delta (i.e., committed buying as measured by volume delta or buying and selling power as calculated by the difference in volume traded at the bid and offer) in SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index, via Bookmap.

Context: After unimpressive earnings results by Amazon Inc (NASDAQ: AMZN) and Apple Inc (NASDAQ: AAPL), on no substantial change in volume and minimal expansion of range, we see the Nasdaq 100 (INDEX: NDX) (ETF: QQQ) (FUTURE: /NQ) trading weak, relative to its peers. 

This comes as three of the major indices (pictured below) struggle to maintain prices above their September peaks.

Still, as evidenced by where the indices are in relation to their yellow volume-weighted average price (VWAP) indicators, the average buyer, since the last major peak, is in a profitable position. 

Should indices snap lower, those VWAPs ought to serve as dynamic support levels.

Graphic: SPDR S&P 500 ETF (NYSE: SPY) top left, Invesco QQQ Trust Series 1 (NASDAQ: QQQ) top right, iShares Russell 2000 ETF (NYSE: IWM) bottom left, SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) bottom right. The S&P 500, in particular, is out of balance on the weekly and monthly, in balance on the daily.

Further, the aforementioned trade is happening in the context of slowing growth, as well as the risks of a taper in asset purchases and a hike in interest rates.

According to a note by The Market Ear, however, JPMorgan Chase & Co’s (NYSE: JPM) Jay Barry believes “Inflation developments have been global in nature and inflation is indeed proving to be less transitory than previously expected.”

“Our understanding of the Fed’s reaction function, as well as our view on likely compositional changes on the FOMC, leads us to believe that the Fed is unlikely to follow its British and Canadian counterparts in raising rates too early simply on inflation concerns.”

In terms of positioning, the CBOE Volatility Index (INDEX: VIX) was higher, while the VIX futures term structure settled in contango, shifting a tad higher across the entire curve. That dynamic, coupled with the long-gamma environment, signals a potential for very near-term stability.

On the other hand, according to SqueezeMetrics analyses, “middling dark pool sentiment and middling gamma exposure [portends] … 1-month negative returns.”

That’s in line with what SpotGamma sees as a potential window for volatility – given OPEX – into next week’s Federal Open Market Committee (FOMC) meeting.

“It’s likely that traders will not look to sell volatility on Monday/Tuesday (pre-Fed) which could bring a pause to this market rise.”

Expectations: As of 7:00 AM ET, Friday’s regular session (9:30 AM – 4:00 PM ET) in the S&P 500 will likely 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.

Balance-Break Scenarios: 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.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,551.75 low volume area (LVNode) puts in play the $4,574.25 high volume area (HVNode). Initiative trade beyond the $4,574.25 HVNode could reach as high as the $4,590.00 minimal excess high and $4,602.50 Fibonacci extension, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,551.75 LVNode puts in play the $4,526.25 HVNode. Initiative trade beyond the $4,526.25 HVNode could reach as low as the $4,510.25 LVNode and $4,495.75 HVNode, or lower.

Click here to load today’s updated key levels into the web-based TradingView charting platform. Note that 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. Learn about the profile.

What People Are Saying

Definitions

Spikes: 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).

Volume Areas: A structurally sound market will build on areas of high volume (HVNodes). Should the market trend for long periods of time, it will lack sound structure, identified as low volume areas (LVNodes). LVNodes denote directional conviction and ought to offer support on any test. 

If participants were to auction and find acceptance into areas of prior low volume (LVNodes), then future discovery ought to be volatile and quick as participants look to HVNodes for favorable entry or exit.

Gamma: Gamma is the sensitivity of an option to changes in the underlying price. Dealers that take the other side of options trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.

Options Expiration (OPEX): Traditionally, option expiries mark an end to pinning (i.e, the theory that market makers and institutions short options move stocks to the point where the greatest dollar value of contracts will expire) and the reduction dealer gamma exposure. In recent history, this reset in dealer positioning has been front-run; prior, there was an increase in volatility after the removal of large options positions and associated hedging.

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.

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

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.

Categories
Commentary

Daily Brief For April 28, 2021

Market Commentary

Index futures balance, trade sideways.

  • Traders honed in on a Fed taper.
  • A heavy day of earnings, FOMC.
  • Expect chop or responsive trade. 

What Happened: Ahead of key economic developments, U.S. stock index futures auctioned sideways-to-lower overnight. Yields and the dollar rose.

This activity comes alongside reports of strong earnings from heavily weighted index constituents. Alphabet Inc (NASDAQ: GOOGL), Microsoft Corporation (NASDAQ: MSFT), and Pinterest (NYSE: PINS) were some of the most anticipated reports.

Today, Joe Biden will unveil his “American Families Plan” in an address to Congress, the Federal Reserve will provide clarity on its monetary easing plan, and Apple Inc (NASDAQ: AAPL), among others, will report their earnings.

Graphic updated at 8:20 AM EST.

What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM EST) will likely open inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity. 

Adding, over the past few sessions, volumes have dwindled and responsive trade has been the course of action. This is in anticipation of impactful fundamental developments, like the FOMC meeting, today.

Responsive Buying (Selling): Buying (selling) in response to prices below (above) area of recent price acceptance.

Goldman Sachs Group Inc (NYSE: GS) expects the Fed to keep rate hikes off the table until mid-2023. Given that labor slack remains high, the odds of tapering are rather slim.
Graphic: Goldman Sachs’ timeline for Federal Reserve tapering, via ForexLive.

That said, today’s trade will likely be volatile and participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,186.75 ledge targets the $4,191.75 overnight high (ONH). Initiative trade beyond the ONH may introduce excess and could reach as high as the Fibonacci-derived price targets, $4,197.25-$4,263.00. 

Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack the confidence to continue the discovery process. The ledge will either hold and force participants to liquidate (cover) their positions, or crack and offer support (resistance).

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

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.

In the worst case, the S&P 500 trades lower; activity below $4,166.75 regular-trade low (RTH Low) targets the $4,164.25 high-volume area (HVNode). Thereafter, if lower, participants can look for responses at the $4,163.25, $4,137.25, and $4,122.75 HVNodes.

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.

As long as prices remain within the prior day’s range, responsive trade is the course of action. Participants should approach today’s session with extra caution, given the potential for headline-driven initiative activity. Big picture, though, the bullish narrative remains intact unless the S&P 500 is able to auction and spend time below the $4,110.50 minimal excess low (also the balance-area low). 

Initiative Buying (Selling): Buying (selling) within or above (below) the previous day’s value area.

Balance (Two-Timeframe Or Bracket): Rotational trade that denotes current prices offer favorable entry and exit. Balance-areas make it easy to spot change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).
Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: SHIFT search maps out the trade of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for April 27. Activity in the options market was primarily concentrated in short-dated tenors, in strikes near current prices. Data suggests participants, in insignificant amounts, added call-side exposure into the beginning of May. Sentiment flips into the end of May, beginning of June. 

News And Analysis

Economy | Biden unveils a massive family aid plan funded by taxing the rich. (BBG)

Economy | Fed to stay patient as U.S. outlook improves: decision-day guide. (BBG)

Commodities | Goldman sees commodities rallying over the next six months. (FP)

Markets | Tesla accused by EPA of auto-coating emissions reporting failure. (BBG)

Markets | Airbus unit has pleaded guilty to corruption over Saudi contracts. (BBG)

Commodities | OPEC+ is sticking to plan to ease oil output cuts from May 1. (REU)

Markets | Local banks, like their giant rivals, are finding loan growth elusive. (BBG)

Markets | Turning tide signals ebbing of liquidity ocean, analysis suggests. (REU)

What People Are Saying

Innovation And Emerging Trends

Markets | Chatting with Cathie Wood, the CEO, and CIO at ARK Invest. (MM)

FinTech | Trader-inspired brokerage Edge Clear launches new platform. (BZ)

FinTech | Barclays taps amount over end-to-end digital banking solutions. (BZ)

Financing | IRR in emerging tech hubs starting to overtake Silicon Valley. (TC)

FinTech | ICE introduces ultra-low-latency wireless services in Europe. (MM)

About

Renato founded Physik Invest after going through years of self-education, strategy development, and trial-and-error. His work reporting in the finance and technology space, interviewing leaders such as John Chambers, founder, and CEO, JC2 Ventures, Kevin O’Leary, Canadian businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others, afforded him the perspective and know-how very few come by.

Having worked in engineering and majored in economics, Renato is very detailed and analytical. His approach to the markets isn’t built on hope or guessing. Instead, he leverages the unique dynamics of time and volatility to efficiently act on opportunity.

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.

Categories
Commentary

Market Commentary For The Week Ahead: ‘Hello, Goodbye’

Key Takeaways:

What Happened: Coming into the extended holiday weekend, on tapering volumes, U.S. index futures balanced for four regular trading sessions (9:30 AM – 4:00 PM ET), before breaking out.

Pictured: Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures

What To Expect: Thursday’s session found initiative buying surface above the $3,731.00 high-volume node (HVNode), the market’s most recent perception of value.

Given four-sessions worth of unchanged value, and the failure to fill the gap beneath a weak low (i.e., a visual level that attracts the business of short-term, technically-driven market participants) at $3,714.50, participants will come into Monday’s session knowing the following:

  1. Amid Thursday’s late-day buying, price diverged from value.
  2. The overnight rally high at $3,747.75 was recovered (i.e., based on historical trade, there were low odds that the overnight all-time high would end the upside discovery process).
  3. The multi-month upside breakout targeting S&P 500 prices as high as $4,000.00 remains intact.

In light of the above dynamics, the following frameworks apply for next week’s trade.

In the best case, the S&P 500 remains above its $3,731.00 HVNode. Expectations thereafter include continued balance, or a response followed by initiative buying to take out the price extension at $3,756.75.

In the worst case, the S&P 500 initiates below its $3,731.00 HVNode. Expectations thereafter include a test of the weak, minimal excess low at $3,714.50, and subsequent follow-through as low as the $3,691.00 break-point. 

Noting: Excess forms after an auction has traveled too far in a particular direction and portends a sustained reversal. Absence of excess, in the case of a low, suggests minimal conviction; participants will cover (i.e., back off the low) and weaken the market, before following through.

Two go, no-go levels exist; trade that finds increased involvement above $3,752.75 and below $3,714.50 would suggest a change in conviction. Anything in-between favors responsive trade.

Conclusion: From an uneven recovery, stimulus, elections, trade, and the like, it helps to boil it down to what actually matters: price and value. 

Though risks remain, markets are pricing in the odds of a continued rebound. All broad-market indices are in an uptrend. A break below $3,600.00 in the S&P 500 would denote a substantial change in tone.

Pictured: Retest of the upside breakpoint on a weekly candlestick chart of the cash S&P 500 Index

Levels Of Interest: $3,752.75 rally-high, $3,714.50 weak low, $3,731.00 HVNode, $3,756.75 price extension, $3,691.00 break-point.

Bonus: Here is a look at some of the opportunities unfolding.

Photo by Max Walter from Pexels.

Categories
Commentary

Market Commentary For The Week Ahead: ‘All In At The Top’

Key Takeaways:

  • Analysts extended 2021 S&P 500 targets.
  • Fear and greed are tugging at each other. 
  • Jefferies ups 2021 GDP forecast to 5.25%.
  • Net equity buying the largest in months.
  • Inflation is rising where you don’t want it.
  • Positioning suggests elevation of volatility.
  • The big picture breakouts remain intact.

What Happened: Coming into the extended holiday weekend, on tapering volumes, U.S. index futures balanced within prior range. 

This activity occurred in the context of a larger balance-area forming just beyond the $3,600.00 multi-month break-out point. Given the lack of range expansion, in addition to the aforementioned responsive, back-and-forth trade, participants are signaling a lack of conviction.

Though there is a lot of noise in the markets — an uneven recovery, stimulus, elections, trade, and the like — one key point remains: the multi-month upside breakout targeting S&P 500 prices as high as $4,000.00 remains intact. Add to this the recovery of Monday’s liquidation fueled by weak-handed, short-term buyers, and the fact that the all-time $3,724.25 rally-high was established in an overnight session, it is highly likely that the upside discovery process has yet to end.

Note: Historically, there is a low probability that overnight all-time highs end the upside discovery process. 

Pictured: Profile overlays on a 30-minute candlestick chart of the Micro E-mini S&P 500 Futures

What To Expect: Friday’s session found responsive selling surface near the $3,691.00 profile level. Given that participants had difficulty in sustaining higher prices, alongside shortened holiday trade, the following frameworks apply for next week’s trade.

In the best case, the S&P 500 remains above its $3,667.75 HVNode, and continues to balance. As stated earlier, given the tapering volume and holiday, the odds of directional resolve are quite low. 

Two go, no-go levels exist; trade that finds increased involvement above $3,691.00 and below $3,667.75 would suggest a change in conviction. Anything in-between favors responsive trade.

Conclusion: Bank of America Corp’s (NYSE: BAC) Michael Hartnett summarized it best: “[T]he year of the virus, the lockdown, a crash, a recession, an epic policy panic, the greatest stock market rally of all-time, a V-shape economic recovery, and ending with a vaccine for COVID-19.”

Though risks remain, markets are pricing in the odds of a continued rebound. Unless some exogenous event were to transpire, technically speaking, all broad-market indices are in an uptrend. A move below $3,600.00 in the S&P 500 would denote a change in tone, increasing the likelihood of a failed breakout that would target prices as low as $3,200.00.

Pictured: Retest of the upside breakpoint on a daily candlestick chart of the cash S&P 500 Index

Levels Of Interest: The $3,691.00 boundary and $3,667.75 HVNode.

Bonus: Here is a look at some of the opportunities unfolding.

Photo by Raka Miftah from Pexels.

Categories
Commentary

Market Commentary For 12/23/2020

What Happened: After a day of balance, and a brief overnight liquidation alongside news that President Donald Trump would not sign a coronavirus relief bill until the size of stimulus checks is increased, U.S. index futures rebounded, with the S&P 500 returning to the $3,691.00 ledge, a level that’s repeatedly attracted responsive sellers.

What Does It Mean: During Tuesday’s session, participants accepted the prior day’s recovery, evidenced by the two-sided trade at prices where the most activity occurred during the prior day, or point of control (POC).

Given that participants deem the high end of Monday’s range fair to do business in, participants will come into Wednesday’s session knowing that the $3,691.00 high-volume ledge is a key upside reference. The aforementioned ledge denotes a pause in discovery, likely attributable to the declining participation ahead of the holiday weekend.

That said, below the ledge, responsive buyers continue to resurface at the $3,667.75 high-volume node (HVNode) on long liquidations (i.e., those events that are caused by overly committed short-term participants that trim positions in panic because they lack the wherewithal or conviction to follow-through).

Pictured: Visual of /MES $3,691.00 ledge.

What To Expect: In light of the overnight recovery and trade near the $3,691.00 ledge, the following frameworks apply for today’s trade.

In the best case, buyers hold the the index above its $3,667.75 HVNode. Holding said reference would be indicative of continued balance after Monday’s recovery; in such case, participants would look for signs of follow-through above the $3,691.00 ledge. Once the ledge cracks (i.e., participants initiate and accept, spend more than 15-minutes above the level), it ought to (1) offer support and (2) draw in buyers to continue the upside discovery process up to, at least, the $3,700.00 and $3,707.75 HVNodes.

Anything higher targets the $3,724.25 overnight rally high.

Levels Of Interest: The $3,691.00 ledge, $3,667.75, $3,700.00 and $3,707.75 HVNodes, as well as the $3,724.25 overnight high.

Bonus: Big-picture breakout remains intact. See below for opportunities unfolding.

Pictured: Daily candlestick chart of the cash S&P 500 Index
Categories
Commentary

‘Rising Tide Lifts All Boats’: Market Commentary For The Week Ahead

Key Takeaways:

What Happened: U.S. index futures auctioned to new all-time highs before weakening into Friday’s derivative expiry.

What Does It Mean: After participants established a rally-high in the December 9 overnight session, the S&P 500 liquidated down to the balance-area boundary near $3,625.00.

After the December 14 gap open on COVID-19 coronavirus vaccine and stimulus progress, for the remainder of the week, indices negated prior selling, establishing a new all-time high. Friday’s trade managed to repair some structural deficiencies left in the aforementioned advance.

Pictured: Profile overlays on a 65-minute candlestick chart of the Micro E-mini S&P 500 Futures

What To Expect: Friday’s session found responsive buyers surface at the low-volume node (LVNode) near $3,680.00. Low-volume areas denote directional conviction and ought to resist future auction rotations. Auctioning through the LVNode would foreshadow further rotation and trade as low as the balance-area low.

Given that the higher-time frame breakout remains intact and selling appears non-committal, participants will come into Monday’s session knowing the following:

  1. Both sentiment and positioning are historically stretched, while the recovery remains uneven
  2. Inflation remains cool due to the profound influence of disruptive innovation.
  3. U.S. Congress reaches deal on COVID-19 aid package, plans votes for Monday. 
  4. The decline in realized correlation due to factor and sector rotation, as well as the return of systematic option selling strategies will push the long-gamma narrative in which volatility is suppressed and the market pins or slowly rises in a range-bound fashion.
  5. The S&P 500’s higher-time frame breakout remains intact (see chart below); JPMorgan Chase & Co. (NYSE: JPM) confirms equities will rally short-term with the S&P 500 auctioning as high as $4,000.
  6. Despite high CAPE ratios, stock-market valuations aren’t that absurd.

Therefore, the following frameworks for next week’s trade apply.

In the best case, buyers maintain conviction and hold the index above the $3,680.00 LVNode. Auctioning below said reference denotes a change in conviction. Participants would then look for a response near the $3,667.75 HVNode. Failure to remain above the HVNode would portend rotation, further balancing. 

In the worst case, participants initiate below the $3,625.00 balance-area low, jeopardizing the higher-time frame breakout.

Conclusion: As BlackRock Inc (NYSE: BLK) said, “a rising tide lifts all boats”; though financial markets have largely priced in positive news surrounding vaccines and stimulus, the rally remains intact, bolstered by a drive for yield — technical factors as a result of systemic and hedge fund strategies, among other things.

Pictured: Retest of the upside breakpoint on a daily candlestick chart of the cash S&P 500 Index

Levels Of Interest: $3,740.75 and $3773.75 price extensions, $3,724.25 all-time rally high, the micro-composite HVNode at $3,707.75, $3,691.00, and $3,667.75, as well as the $3,680 LVNode and poor structure near the $3,625.00 balance-area low.

Bonus: Here is a look at some of the opportunities unfolding.

Photo by Fede Roveda from Pexels.

Categories
Commentary

Market Commentary For 12/17/2020

What Happened: After yesterday’s Federal Reserve policy decision, U.S. index futures auctioned higher overnight alongside hopes of added U.S. fiscal and monetary stimulus, as well as vaccine rollouts.

What Does It Mean: During Wednesday’s regular trade, the S&P 500 initiated up to the $3,691.25 high-volume node, a valuable price, before sellers responded, established excess, and extended lower into the close.

Given the response to yesterday’s Federal Reserve decision, as well as overnight activity, the S&P 500 remains in a tactically bullish position, confirming the higher-time frame upside breakout which targets prices as high as $4,000.

What To Expect: In light of the overnight gap higher, the following frameworks apply for today’s trade.

In the best case, buyers maintain conviction and hold the index above the $3,691.25 high-volume node. Thereafter, upside references include the high-volume node near $3,710.00, and then the $3,720.00 price extension.

In the worst case, if the S&P 500 is brought back into range, participants can expect further balancing. The current market environment supports the long-gamma narrative in which volatility is suppressed and the market pins or slowly rises in a range-bound fashion.

Adding, the market has initiated back through $3,680.00, a low-volume area. Such low-volume areas denote directional conviction and ought to offer support on any test. Penetrating the low-volume area would put in play the $3,667.75 high-volume node.

Levels Of Interest:  $3,680.00 low-volume node, the $3,710.00 and $3,667.75 high-volume nodes, as well as the $3,720.00 price extension.

Bonus: Opportunities unfolding.

Categories
Commentary

Market Commentary For 12/14/2020

What Happened: Alongside optimism surrounding the COVID-19 coronavirus vaccine and stimulus talks, U.S. index futures auctioned higher overnight.

What Does It Mean: During last week’s trade, U.S. index futures auctioned to new all-time highs, before moving back into balance.

For the remainder of the week, participants accepted lower prices until Friday’s session established minimal excess lows, broke into prior poor structure, and ended the technical downtrend. 

Since Friday’s session found responsive buying surface at a key technical level (i.e., the high-volume node near $3,630.00 and 20-day simple moving average), buyers extended range through the $3,667.75 high-volume node, the most positive outcome.

What To Expect: In light of the overnight gap higher, the following frameworks apply for today’s trade.

In the best case, the auction makes an attempt to repair some of the poor overnight structure. Thereafter, buyers regain conviction and initiate back through the $3,667.75 high-volume node before continuing to at least the next high-volume node at $3,690.75, and then the prior all-time rally high.

In the worst case, if the S&P 500 auctions below $3,667.75, participants would look to whether the S&P 500 resists Friday’s range. Accepting Friday’s range (i.e., spending more than one half-hour period) may put in play the minimal excess lows near $3,625.00.

Levels Of Interest:  $3,667.75 high-volume node is the go/no-go level.

Bonus: Opportunities unfolding.

Categories
Commentary

‘To Infinity And Beyond’: Market Commentary For The Week Ahead

Key Takeaways:

What Happened: During last week’s trade, U.S. index futures auctioned to new all-time highs, before moving back into balance.

What Does It Mean: After participants established an all-time rally high during Wednesday’s overnight session, the S&P 500 liquidated in regular trading, down to the micro-composite high-volume node near $3,667.75, a price level where participants spent a large amount of time in the past. The session ended in prior balance and range with poor profile structure denoting the presence of directional conviction.

For the remainder of the week, participants accepted lower prices until Friday’s session established minimal excess lows, broke into prior poor structure, and ended the technical downtrend. 

Given the mechanical trade (i.e., minimal excess at Friday’s lows) and poor structure (e.g., low-volume areas), it’s very likely that the selling range extension was the result of weak-handed, short-term momentum buyers liquidating positions in panic.

Pictured: Profile overlays on a 65-minute candlestick chart of the Micro E-mini S&P 500 Futures

What To Expect: Friday’s session found responsive buyers surface at a key technical level (i.e., the high-volume node near $3,630.00 and 20-day simple moving average). The fact that there was a response at a technical reference confirms that participation in the market is overwhelmingly short-term; in other words, institutions (e.g, funds) tend not to transact at exact technical levels. 

Given that the higher-time frame breakout remains intact, participants will come into Monday’s session knowing the following:

  1. Both sentiment and positioning are historically stretched while the market has entered a short-gamma environment; in such cases, dealers hedge their derivatives exposure by buying into strength and selling into weakness. This, alongside the presence of short-term traders in U.S. equities, will exacerbate volatility in the coming week.
  2. Looking to 2021, the decline in realized correlation due to factor and sector rotation, as well as the return of systematic option selling strategies should push the long-gamma narrative in which volatility is suppressed and the market pins or slowly rises in a range-bound fashion.
  3. JPMorgan Chase & Co. (NYSE: JPM) strategist Marko Kolanovic suggests equities will rally short-term with the S&P 500 auctioning as high as $4,000 on the basis of low rates, improved fundamentals, buybacks, as well as systematic and hedge fund strategies.
  4. Despite high CAPE ratios, stock-market valuations aren’t that absurd.
  5. Prior trade points to the non-presence of committed selling; after Friday’s session saw a failure to range extend and establish excess, the technical down-trend was broken.

Therefore, the following frameworks for next week’s trade apply.

In the best case, buyers surface at the $3,654.75 low-volume node and extend range up to the high-volume node at $3,667.75. High-volume areas denote value and should slow prices allowing participants enough time to enter and exit trades. An initiative drive through this area would portend a test of the $3,690.75 high-volume node, and then the prior all-time rally high.

In the worst case, if the S&P 500 auctions below $3,630.00, participants would look to repair the poor structure just shy of $3,625.00. Finding acceptance (i.e., spending more than one half-hour of regular trade) below Friday’s range would be the most negative outcome.

Conclusion: Though sentiment and positioning imply limited potential for further upside, the S&P 500’s higher-time frame breakout remains intact.

Pictured: Retest of the upside breakpoint on a daily candlestick chart of the cash S&P 500 Index

Levels Of Interest: $3,720.00 extension, $3,715.00 all-time rally high, the micro-composite HVNode at $3,690.75, $3,667.75, and $3,630.00, as well as the $3,654.75 LVNode and poor structure near $3,625.00.

Bonus: Here is a look at some of the opportunities unfolding.

Spotify Technology SA (NYSE: SPOT) – Acceptance after higher-time frame balance-breakout. Potential remains for a push to the balance-area projection.

Apple Inc (NASDAQ: AAPL) – Acceptance after higher-time frame balance-breakout. Potential scenarios include (1) continued rotation, (2) upside continuation, or (3) failed breakout and a return to balance.

Advanced Micro Devices Inc (NASDAQ: AMD) – Acceptance after higher-time frame balance-breakout. Potential for upside continuation or failed breakout and return to balance.

Shopify Inc (NYSE: SHOP) – Balance just shy of channel boundary. Potential for upside breakout and continuation.

Chipotle Mexican Grill Inc (NYSE: CMG) – Just shy of balance-area high. Potential for upside breakout and continuation.

Tesla Inc (NASDAQ: TSLA) – Rejected prior week’s balance-area. Likelihood of continuation up to S&P 500 index inclusion intact on surging call volumes, dealer accumulation. $700 strike is the high-OI strike of interest.

Zoom Video Communications Inc (NASDAQ: ZM) – Just shy of long-term trend, anchored VWAP. Potential for responsive buying.

Summit Materials Inc (NYSE: SUM) – Failed breakout, but speculative call volumes surfaced on the return into balance. Potential exists for another attempt higher.

Nasdaq-100 (INDEXNASDAQ: NDX) – Retest of balance-area high. Higher time-frame breakout remains intact.

Cover photo by SpaceX from Pexels.