Categories
Commentary

Weekly Brief For August 22, 2021

Market Commentary

Equity index futures recover after last week’s liquidation.

  • Unpacking the inclination to taper.
  • Ahead: Busy week. Jackson Hole.

What Happened: The S&P 500, Nasdaq 100, and Dow Jones Industrial Average recovered more than 50% of last week’s liquidation. The Russell 2000 remains a laggard, trading weak below the halfway point of a multi-month consolidation.

Ahead is data on the Markit manufacturing and services PMI (Monday), existing-home sales (Monday), new home sales (Tuesday), durable goods orders (Wednesday), nondefense capital goods orders (Wednesday), jobless claims (Thursday), GDP revision (Thursday), personal income (Friday), consumer spending (Friday), core PCE price index (Friday), trade in goods (Friday), as well University of Michigan consumer sentiment (Friday). 

Also, the Jackson Hole Economic Policy Symposium starts Thursday.

Graphic updated 12:30 PM ET Sunday. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

What To Expect: During the prior week’s trade, on weak intraday breadth and market liquidity metrics, the worst-case outcome occurred, evidenced by a liquidation that repaired poor profile structures as low as the S&P 500’s $4,353.00 point of control (POC).

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

Then, during Friday’s session, a p-shaped profile structure (which denotes short covering) took back the spike base a few ticks below the $4,422.75 balance area high (BAH) – a prior break from value – negating the post-Federal Open Market Committee (FOMC) minutes liquidation.

Further, the aforementioned trade is happening in the context of moderating growth, peak long equity positioning, breadth divergences, a resurgence in COVID-19, geopolitical tensions, and an inclination to taper stimulus.

The implications of these themes on price are contradictory; to elaborate, as measures of macro expectations rolled over, in line with companies’ profit expectations, Treasury yields declined, triggering a rotation back into high growth equities.

Graphic: As created by Bank of America Corporation (NYSE: BAC) and shared by Bloomberg, the proportion of fund managers expecting a stronger economy tumbles while the number who are overweight in equities has barely moved.

This comes at the same time a strong July jobs report helped the Federal Reserve (Fed) move toward a consensus on tapering. Given the Fed’s enormous share of the Treasury market, fear of downside equity volatility is apparent; a shift higher in the VIX futures terms structure denotes demand for protection into and through the Jackson Hole Economic Policy Symposium August 26-28, 2021.

“The Fed has fostered a broad range of bubbles because their massive liquidity injections have been trapped in the financial economy,” Rich Bernstein of Richard Bernstein Associates said in a summary quoted by Bloomberg. “As with any cornered market, there are limited buyers and prices fall as the “cornerer” sells. Accordingly, bond prices seem likely to fall (interest rates rise) [as the] Fed reduces its cornered positions. Rising interest rates could be the kryptonite to the bubble in long-duration assets (long-term bonds, technology, innovation, disruption, bitcoin, etc.).”

Obviously, tapering may have major repercussions. However, to balance our expectations, looking back to 2014, when the Fed was scaling back bond purchases, the S&P 500 rose over 10% and rates fell after spiking initially. 

Graphic: Ally Financial Inc-owned (NYSE: ALLY) Ally Invest unpacks 2014 taper of Federal Reserve bond buying.

Ally Invest’s chief investment strategist Lindsey Bell concludes: “Conditions may not be perfect, but they could be strong enough to move from a wheelchair to some heavy-duty crutches, especially if it means keeping overheating symptoms like inflation at bay.”

Regardless, major risks remain given the growth of derivatives and the potential for offsides positioning. Even the slightest reduction in the Federal Reserve’s balance sheet – the removal of liquidity – may prompt a cascading reaction that exacerbates underlying price movements.

As Kai Volatility’s Cem Karsan once told me for a Benzinga article: “It’s not a coincidence that the mid-February to mid-March 2020 downturn literally started the day after February expiration and ended the day of March quarterly expiration. These derivatives are incredibly embedded in how the tail reacts and there’s not enough liquidity, given the leverage, if the Fed were to taper.”

Moreover, for next week, given expectations of heightened volatility, participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,437.75 high volume area (HVNode) pivot puts in play the $4,463.75 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,476.50 overnight high (ONH) and $4,511.50 Fibonacci extension, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,437.75 HVNode puts in play the $4,415.75 LVNode. Initiative trade beyond the LVNode could reach as low as $4,393.75 micro composite point of control (MCPOC) and $4,365.25 LVNode, or lower. 

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 12:30 PM ET Sunday.

News And Analysis

Moody’s discusses taper – maybe this year, maybe not.

Single-family home construction the highest since 2007.

Fannie Mae says COVID-19 surge won’t impact growth. 

Goldman Sachs cut its U.S. growth forecast on the virus.

APAC corporate rating recovery may stall as cases rise.

Wall Street is just as baffled about markets as last year.

Canadian inflation has risen to 3.7%, troubling Trudeau. 

Powell second term approval boosted by Yellen backing.

A gaping 10-year bond call reveals growth uncertainties.

Michael Burry of ‘Big Short’ bet against ARK Invest ETF.

Outcry rises after White House looks to quell gas prices.

Big risks and trends facing banks globally and regionally.

Could a Western U.S. drought threaten municipal credit.

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.

Categories
Commentary

Daily Brief For August 20, 2021

Market Commentary

Equity index futures trade sideways to lower.

  • OPEX and taper and COVID, oh my!
  • Ahead is a light calendar. Fed speak.
  • Positioning for directional movement.

What Happened: U.S. stock index futures auctioned sideways to lower overnight alongside news of faltering growth and Chinese regulatory curbs, ahead of a monthly options expiration (OPEX) and next week’s Federal Reserve event at Jackson Hole.

Ahead is Fed-speak by Rob Kaplan (11:00 AM ET).

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:30 AM ET, Friday’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 market liquidity metrics, the best case outcome occurred, evidenced by trade above the $4,381.75 low volume area (LVNode), up to the $4,411.75 high volume area (HVNode). 

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.

Despite trading higher yesterday, the S&P 500, in particular, validated the knee-jerk, albeit weaker, selling, after the release of Federal Open Market Committee (FOMC) minutes.

Given how far up into Wednesday’s range participants found acceptance, the spike base a few ticks below the $4,422.75 balance area high (BAH) is firmly in play today.

Spike Rules In Play: 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).

Further, the aforementioned trade is happening in the context of an inclination to taper stimulus in the face of a resurgent COVID-19 coronavirus. This theme’s implications on price are contradictory; to elaborate, “A strong job report in July was enough to move the Fed needle from a very early debate on tapering in June to a consensus on tapering this year in July,” Nordea strategists note

“[A] tapering process should lead to 1) a stronger USD, 2) a flatter yield curve, 3) an expensive USD in the xCcy basis and 4) underperformance of small caps. The USD curve already started flattening markedly on the heels of the message delivered in June when Powell started hinting that tapering was actually debated within the Fed.”

Moreover, for today, given expectations of higher volatility and responsive trade, in light of an expected open in balance, participants may make use of the following frameworks.

Balance (Two-Timeframe Or Bracket): 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). 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,393.75 micro composite point of control (MCPOC) puts in play the $4,411.75 HVNode. Initiative trade beyond the HVNode could reach as high as the $4,422.75 BAH and $4,437.00 untested point of control (VPOC), repairing Thursday’s minimal excess high.

In the worst case, the S&P 500 trades lower; activity below the $4,393.75 MCPOC puts in play the $4,365.25 balance area low (BAL) and LVNode. Initiative trade beyond the $4,365.25 figure could reach as low as the $4,341.00 VPOC and $4,315.25 HVNode.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

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.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:30 AM ET. A key go/no-go level of interest is the dark blue Volume Weighted Average Price (VWAP) anchored from the FOMC minutes release (blue in color). VWAPs are 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. Based on trade in relation to AVWAP, the average buyer since FOMC is losing. What happens when we remain above AVWAP?

News And Analysis

Savings stash built up during pandemic mostly spent.

Elon Musk unveils a humanoid robot for boring work.

BlackRock: Dollar assets a way to manage volatility.

Emerging oil nations reject climate curb on exploring.

APAC corporate rating recovery may stall on COVID.

Surging delta cases reverse march back to the office.

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.

Categories
Commentary

Daily Brief For August 19, 2021

Market Commentary

Equity index futures continued yesterday’s late-day liquidation.

  • Chop-chop: Fed nears time to taper.
  • Busy morning in regards to releases.
  • Range is wide; volatility may persist.

What Happened: U.S. stock index futures auctioned lower overnight alongside the increased prospects of stimulus reduction in 2021.

Ahead is data on jobless claims (8:30 AM ET), Philadelphia Fed manufacturing index (8:30 AM ET), and the index of leading economic indicators (10:00 AM ET). 

Graphic updated 6:45 AM ET. Sentiment Risk-Off if expected /ES open is below the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:45 AM ET, Thursday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open outside of prior-range and -value, suggesting a higher potential for immediate directional opportunity.

Adding, during the prior day’s regular trade, on weak intraday breadth and market liquidity metrics, the worst-case outcome occurred, evidenced by a close below the $4,422.75 balance area high (BAH) and 20-day simple moving average (SMA).

This is significant because the BAH marked a go/no-go level on a prior breakout and the SMA – a metric that ought to solicit a response by short-term (i.e., technically driven) participants who may be unable to defend retests – broke. As a result of this failure, odds supported the move to the $4,365.25 balance area low (BAL), the lower end of the balance.

Gap Scenarios In Play: Gaps ought to fill quickly. Should they not, that’s a signal of strength; do not fade. Leaving value behind on a gap-fill or failing to fill a gap (i.e., remaining outside of the prior session’s range) is a go-with indicator.

Auctioning and spending at least 1-hour of trade back in the prior range suggests a lack of conviction; in such a case, do not follow the direction of the most recent initiative activity.

Further, the aforementioned trade is happening in the context of a shift in the tapering debate, ahead of the Jackson Hole Economic Policy Symposium August 26-28, 2021. This theme’s implications on price are contradictory; to elaborate, the summary of the late July Federal Open Market Committee (FOMC) meeting suggests an inclination to start reducing the pace of asset purchases this year.

Graphic: S&P Global unpacks Federal Reserve balance sheet hypotheticals.

As an aside, markets went on a historic tear over the past year or so given monetary frameworks and max liquidity, so to speak. Add in the growth of derivatives exposure and potential for offsides positioning, even the slightest reduction in the Federal Reserve’s balance sheet – the removal of liquidity – has the potential to prompt a cascading reaction that exacerbates underlying price movements.

As Kai Volatility’s Cem Karsan, in a conversation with me for a Benzinga article, said: “It’s not a coincidence that the mid-February to mid-March 2020 downturn literally started the day after February expiration and ended the day of March quarterly expiration. These derivatives are incredibly embedded in how the tail reacts and there’s not enough liquidity, given the leverage, if the Fed were to taper.”

Graphic: SpotGamma data suggests the cash-settled S&P 500 Index (INDEX: SPX) may open in short-gamma territory. To note, 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.

Moreover, for today, in light of higher volatility and responsive trade expectations – given overextension from value (i.e., fair prices for two-sided trade as derived from the volume profile) and a test of a key anchored volume-weighted average price (VWAP) – participants may make use of the following frameworks.

More On 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.
Graphic: SPDR S&P 500 Trust ETF (NYSE: SPY) flirts with key downside anchored VWAPs. A key downside level in SPY lies at $427.95, currently. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,381.75 low volume area (LVNode) pivot puts in play the $4,393.75 micro composite point of control (MCPOC). Initiative trade beyond the MCPOC could reach as high as the $4,411.75 high volume area (HVNode) and the aforementioned $4,422.75 BAH.

In the worst case, the S&P 500 trades lower; activity below the $4,381.75 low volume area (LVNode) puts in play the $4,365.25 BAL/LVNode. Initiative trade beyond the BAL/LVNode could reach as low as the $4,341.00 untested point of control (VPOC) and $4,315.25 HVNode.

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.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:45 AM ET.

News And Analysis

Landlords from Florida to California are jacking up rents.

COVID vaccines are less effective against new variants.

UK Fintech market runs hot but fear of bubble premature.

Tencent warns of more China tech curbs after growth hit.

A closer look at the investment/speculative-grade divide.

US restaurants up prices to offset labor inflation, demand.

Disenchanted investors help drive the record gold prices.

A complete Fed balance sheet normalization years away.

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.

Categories
Commentary

Daily Brief For August 18, 2021

Market Commentary

Equity index futures recover from a violent liquidation.

  • Push-pull on contradicting narratives.
  • Ahead: Housing data, FOMC minutes.
  • Volatility rises ahead of a large OPEX.

What Happened: U.S. stock index futures auctioned sideways to higher, overnight, ahead of key releases including the latest Federal Reserve minutes.

“Unless Fed minutes ‘reveal something substantively different from recent source stories, the market is unlikely to react significantly, and choppy trading may continue,’” Mizuho International Plc strategists including Peter Chatwell said in a note featured by Bloomberg.

Ahead is data on building permits and housing starts (8:30 AM ET), Fed speak by James Bullard (12:00 PM ET), and FOMC minutes (2:00 PM ET).

Graphic updated 6:45 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:45 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 market liquidity metrics, the worst-case outcome occurred, evidenced by trade below the $4,456.75 low volume area (LVNode) pivot.

This is significant because the initiative trade resulted in a test of the $4,422.75 balance area high (BAH) – a go/no-go level on a prior breakout – as well as the 20-day simple moving average, a metric that ought to solicit a response by short-term (i.e., technically driven) participants who may be unable to defend retests.

Further, the aforementioned trade is happening in the context of a rollover in macro expectations, peak long equity positioning, breadth divergences, a monthly options expiry (OPEX), as well as a shift higher in the VIX futures term structure

The implications of these themes on price are contradictory; to elaborate, extended positioning – which alone suggests risks are asymmetric – coupled with a large OPEX and pronounced shift in shorter-dated VIX expiries, warns of elevated near-term risks for equity market stability.

Graphic: VIX term structure shifts higher with the biggest move happening at the short end of the curve, via VIX Central, from The Market Ear.

Moreover, for today, given expectations of middling volatility and responsive trade, participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,447.25 high volume area (HVNode) pivot puts in play the $4,456.75 low volume area (LVNode). Initiative trade beyond the $4,456.75 LVNode could reach as high as the $4,463.75 LVNode and $4,476.50 overnight high (ONH).

In the worst case, the S&P 500 trades lower; activity below the $4,447.25 HVNode puts in play the $4,434.25 LVNode. Initiative trade beyond the $4,434.25 LVNode could reach as low as the aforementioned $4,422.75 BAH and $4,411.00 VPOC, which is a tick or so below the minimal excess low Tuesday’s liquidation produced.

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.

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.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:45 AM ET.

News And Analysis

Mixed messages in new home purchase applications.

China quietly defuses hidden government debt bomb.

Consumers are wary of COVID return amid recovery.

ARK Invest’s Cathie Wood hits back at Michael Burry.

President Biden plans to urge COVID-19 booster shot.

U.S. freezes nearly $9.5B in Afghanistan bank assets.

The stage is set for the next leg up in cyclicals, value.

JPMorgan and Lloyds look to spur more fintech deals.

Developments in Afghanistan may threaten neighbors.

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.

Categories
Commentary

Daily Brief For August 17, 2021

Market Commentary

Equity index futures traded lower overnight.

  • COVID-19, SEC, and political tension.
  • Ahead: Retail sales, NAHB, and more.
  • Indexes positioned for sideways trade.

What Happened: U.S. stock index futures auctioned lower overnight alongside news of COVID-19 lockdowns, an SEC warning on Chinese company risks, and tensions in Afghanistan.

Ahead is data on retail sales (8:30 AM ET), industrial production (9:15 AM ET), capacity utilization (9:15 AM ET), business inventories (10:00 AM ET), and the NAHB home builders’ index (10:00 AM ET). Jerome Powell speaks at (1:00 PM ET) while Neel Kashkari is scheduled to speak at (3:45 PM ET).

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:30 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 the prior day’s regular trade, on weak intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by trade above the $4,447.75 high volume area (HVNode). This is significant because this initiative trade resulted in a new overnight all-time high (ONH) at $4,476.50. Typically, there is a low historical probability associated with overnight rally-highs ending the upside discovery process.

Gap Scenarios In Play: Gaps ought to fill quickly. Should they not, that’s a signal of strength; do not fade. Leaving value behind on a gap-fill or failing to fill a gap (i.e., remaining outside of the prior session’s range) is a go-with indicator.

Auctioning and spending at least 1-hour of trade back in the prior range suggests a lack of conviction; in such a case, do not follow the direction of the most recent initiative activity.

Further, the aforementioned trade is happening in the context of great earnings, pandemic-induced clampdowns on mobility, monetary and fiscal policy evolution, SEC comments against Chinese risks, as well as tension in Afghanistan.

Graphic: Morgan Stanley boosts earnings forecast due to exceptional results. 

With equities more so priced to perfection, the implications of the aforementioned themes on price would be thought of as contradictory; to elaborate, coming into potentially big fundamental catalysts like the Economic Policy Symposium in Jackson Hole, Wyoming, August 26-28, 2021, participants are positioned in such a manner that ought to dampen volatility.

In light of the upcoming August options expiration (OPEX), we point to SpotGamma findings that suggest after OPEX, “the market tends to experience its largest intraday volatility which corresponds to the reduction in large options positions, and the hedging associated with them.”

Graphic: SpotGamma data suggests an increase in volatility after the removal of large options positions. 

Moreover, for today, given expectations of middling volatility and responsive trade, participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,456.75 low volume area (LVNode) puts in play the $4,463.75 LVNode. Initiative trade beyond the $4,463.75 LVNode could reach as high as the $4,476.50 overnight high (ONH) and $4,482.25 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,456.75 LVNode likely puts in play the $4,447.25 HVNode. Initiative trade beyond the $4,447.25 HVNode could reach as low as the $4,437.00 untested point of control (VPOC) and $4,422.75 balance area high (BAH).

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.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

Balance (Two-Timeframe Or Bracket): 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). 
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:30 AM ET.

News And Analysis

Soros joined by D1, Soroban in the exit of Chinese stakes. 

The White House attempts to balance climate, oil policies.

SPAC boom creates fresh target for short-sellers, activists.

Inflation cherry-pickers have trouble drowning out the noise.

The U.S. declared its first Western reservoir water shortage.

Michael Burry of ‘Big Short’ bet against Ark Invest’s ARKK.

President Joe Biden defended U.S. exits from Afghanistan. 

Why Wood changed her ARKK ETF’s China exposure to 0.

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.

Categories
Commentary

Daily Brief For August 16, 2021

Market Commentary

Equity index futures traded lower overnight.

  • Geopolitical tensions and growth fears.
  • Ahead is some data on manufacturing.

What Happened: U.S. stock index futures auctioned lower overnight alongside moderating growth and nervousness with respect to stimulus, COVID-19, and geopolitical developments.

Ahead is data on the Empire State manufacturing index (8:30 AM ET).

Graphic updated 6:30 AM ET. Sentiment Risk-Off if expected /ES open is below the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:30 AM ET, Monday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open outside of prior-range and -value, suggesting a potential for immediate directional opportunity.

Adding, during the prior day’s regular trade, on weak intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by trade above the $4,453.75 high volume area (HVNode). This is significant because this trade validated a move up away from value, in the face of light volume, poor structure, and unsupportive breadth.

Gap Scenarios In Play: Gaps ought to fill quickly. Should they not, that’s a signal of strength; do not fade. Leaving value behind on a gap-fill or failing to fill a gap (i.e., remaining outside of the prior session’s range) is a go-with indicator.

Auctioning and spending at least 1-hour of trade back in the prior range suggests a lack of conviction; in such a case, do not follow the direction of the most recent initiative activity.

Further, the aforementioned trade is happening in the context of geopolitical concerns, peak growth, moderating inflation, renewed fiscal stimulus efforts, and increased odds of Fed tapering early next year. The implications of these themes on price are contradictory; to elaborate, as Nordea strategists note, “Profit margins could come under pressure given rising input/labour costs and decelerating economic growth. Also, excess liquidity has started to fall, which historically has meant a contraction in P/E ratios, at a time when the share of unprofitable companies in the Russell 2000 is the highest ever at 42%.”

Moreover, for today, given expectations of higher volatility and initiative trade, participants may make use of the following frameworks.

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,447.75 HVNode puts in play the $4,455.75 HVNode. Initiative trade beyond the $4,455.75 HVNode could reach as high as the $4,463.25 minimal excess high and $4,470.75 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,447.75 HVNode puts in play the $4,439.00 untested point of control (VPOC). Initiative trade beyond the $4,439.00 VPOC could reach as low as $4,430.00 – a visual low likely generated by short-term (i.e., technically driven) participants who may be unable to defend retests – and the $4,422.75 balance area high (BAH).

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.

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.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

Balance (Two-Timeframe Or Bracket): 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). 
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:10 AM ET.

News And Analysis

The Taliban is once again the dominant force in Afghanistan.

Democrats’ debt dare risks shutdown fights with no easy out.

The world’s third-busiest port still remains partially shut down.

Spending packages would reduce social, environmental risks.

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.

Categories
Commentary

Weekly Brief For August 15, 2021

Market Commentary

Equity index futures are set to open sideways Sunday after a divergent advance on light volume and poor structure.

  • Fundamental context – the good and bad.
  • Ahead a heavy week in terms of releases.
  • A narrow rally on unsupportive dynamics.
  • A simple way to hedge off your downside.

What Happened: U.S. stock index futures auctioned sideways to higher last week as the baseline Dow Jones Industrial Average is forecast to have peaked, according to Moody’s.

Ahead is data on the Empire State manufacturing index (8/16), retail sales (8/17), industrial production (8/17), capacity utilization (8/17), business inventories (8/17), NAHB home builders’ index (8/17), building permits (8/18), housing starts (8/18), Federal Open Market Committee (FOMC) minutes (8/18), jobless claims (8/19), Philadelphia Fed manufacturing index (8/19), and the index of leading economic indicators (8/19).

Graphic updated 9:30 AM ET Sunday. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index (DPI) and Gamma (GEX). A higher DPI approximation is bullish. At the same time, the lower the GEX approximation, the more volatility. SHIFT data used for options activity approximation. Note that options flow is sorted by the call premium spent; if green and more positive then more was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index from 0-100.

What To Expect: During the prior week’s trade, on weak intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by trade above the $4,422.75 balance area high (BAH). This trade is significant because it validated a balance area breakout.

More On 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) is occurring.

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, moderating inflation, renewed fiscal stimulus efforts, and increased odds of Fed tapering early next year. 

The implications of this fundamental context on price are contradictory; to elaborate, as Michael Gayed of The Lead-Lag Report recently said, narrow high yield spreads offer little potential for capital growth, and “conditions that favor higher volatility – the Fed backing off stimulus measures, the upcoming battle over the debt ceiling, high current inflation and/or longer-term deflation – could be not far off into the future.”

As an aside, this leads us into the narrative on the so-called shift from monetary to fiscal; in a conversation for a Benzinga article, Kai Volatility’s Cem Karsan said the following: when liquidity is removed, as policymakers look to fiscal policy to address inequality, for instance, corporations may have to worry about making money, again.

“We’ve seen this throughout history,” Karsan said in reference to this thesis playing out over the next decade, at least. “These cycles are a lot shorter than the monetary supply-side cycles but they tend to be very bad for multiples and great for economic growth.”

Adding, in Friday’s note, the theme of liquidity was discussed. Simply put, the gap between the rates of growth in the supply of money and the gross domestic product turned negative for the first time since 2018.

“Put another way, the recovering economy is now drinking from a punch bowl that the stock market once had all to itself,” said Doug Ramsey, Leuthold Group’s chief investment officer.

Graphic: According to Bloomberg, “While stocks kept rising during frequent negative Marshallian K readings in the 1990s, the pattern since the 2008 global financial crisis — a period when the central bank was in what Ramsey calls a “perpetual crisis mode” — begs for caution.”

Moreover, for next week, given expectations of middling volatility and responsive trade, on factors like the upcoming August 20 monthly options expiration, participants may make use of the following frameworks.

Options Expiration (OPEX): 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 worthless) and the reduction dealer gamma exposure.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,459.00 untested point of control (VPOC) puts in play the $4,463.25 minimal excess high. Initiative trade beyond the minimal excess high could reach as high as the $4,470.75 and $4,483.75 Fibonacci-derived price targets.

In the worst case, the S&P 500 trades lower; activity below the $4,459.00 VPOC puts in play the $4,439.00 VPOC. Initiative trade beyond the $4,439.00 VPOC could reach as low as $4,430.00 – a visual low likely generated by short-term (i.e., technically driven) participants who may be unable to defend retests – and the previously discussed $4,422.75 BAH.

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.

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.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 9:30 AM ET Sunday.

Weekly Trade Idea

Please Note: In no way is the below a trade recommendation. It’s a response to a solicitation for simple ways to hedge against a move lower, into the end of the month.

Options offer an efficient way to gain directional exposure. 

If an option buyer was short (long) stock, he or she could buy a call (put) to hedge upside (downside) exposure. Additionally, one can spread, or buy (+) and sell (-) options together, strategically.

Commonly discussed spreads include credit, debit, ratio, back, and calendar.

  • Credit: Sell -1 option closer to the money. Buy +1 option farther out of the money.
  • Debit: Buy +1 option closer to the money. Sell -1 option farther out of the money.
  • Ratio: Buy +1 option closer to the money. Sell -2 options farther out of the money. 
  • Back: Sell -1 option closer to the money. Buy +2 options farther out of the money.
  • Calendar: Sell -1 option. Buy +1 option farther out in time, at the same strike.

Typically, if bullish (bearish), sell at-the-money put (call) credit spread and/or buy a call (put) debit/ratio spread structured around target price. Alternatively, if the expected directional move is great (small), opt for a back spread (calendar spread). Also, if credit spread, capture 50-75% of the premium collected. If debit spread, capture 2-300% of the premium paid.

Be cognizant of risk exposure to direction (delta), time (theta), and volatility (vega). 

  • Negative (positive) delta = synthetic short (long). 
  • Negative (positive) theta = time decay hurts (helps).
  • Negative (positive) vega = volatility hurts (helps).

Trade Idea: BUY +1 BUTTERFLY SPX 100 (Weeklys) 31 AUG 21 4450/4400/4350 PUT @4.90 LMT.

Thesis: I’m neutral to bearish on the S&P 500 and I think the index may trade sideways to lower into the next month. I will structure a spread below the current index price, expiring in 15 days. I will buy the 4450 put option once (+1), sell the 4400 put option twice (-2), and buy the 4350 put option once (+1) for a $4.90 debit or so. Should the index not move to my target, I may lose the $490 debit. Should it move to $4,400.00, I could make $4,510.00 (i.e., the $5,000.00 payout less debit at entry) at expiry. Should the index move below $4,354.90, I may lose the entire $490 debit. My goal, with this spread, is to close for credit (e.g., $9.80-14.70) if the index moves lower. Note that this trade carries a positive theta at entry.

If necessary, I will hedge the position by either (A) buying S&P 500 futures, (B) narrowing strikes, (C) selling call credit to reduce cost, or (D) roll strikes up in price and out in time.

News And Analysis

Rates recovering; realtors see price moderating.

This turning point for markets merits a hard look.

Market disruptions as Fed balance sheet swells.

Job data eases fears of a slowdown in recovery.

U.S. high yield default rate lowest start in 14 yrs.

Delta variant will not impact Fed’s tapering plan.

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.

Categories
Commentary

Daily Brief For August 12, 2021

Market Commentary

Equity index futures sideways overnight.

  • Bond and equity volatility diverge.
  • Ahead: Claims, PPI, and WASDE.

What Happened: U.S. stock index futures auctioned sideways to higher after the release of Consumer Price Index (CPI) data and progress on stimulus. 

Ahead is data on jobless claims, as well as the PPI and latest WASDE report. 

Graphic updated 6:45 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index and Gamma. A positive Dark Pool Index reading is bullish. At the same time, the higher (lower) the gamma, the less (more) volatility. SHIFT Search data used for options activity. Note that options flow is sorted by the call premium spent; if green and more (less) positive then more (less) was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:45 AM ET, Thursday’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, the best case outcome occurred, evidenced by initiative trade above the $4,422.75 balance area high (BAH), to the $4,443.50 overnight high (ONH). Thereafter, the S&P 500, in particular, traded sideways on strong intraday breadth, evidenced by an inflow into stocks that were up versus down.

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

In comparison to the stronger S&P 500, Russell 2000, and Dow Jones Industrial Average, the Nasdaq 100 traded to a new two-day low, this week, amidst a divergence in equity and bond market volatility, as well as a general rise in rates.

Notwithstanding, despite the S&P 500 continuing to make higher highs in the face of strong inflows and equity buybacks, among other things, trade has been mechanical, halting short of visual references. 

Given that this trade suggests the participants involved are short-term (i.e., technically driven) in nature, caution exists on the entry of longer-term, fundamentally driven participants who deem prices to be too high and unfair.

Further, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,434.75 low volume area (LVNode) pivot puts in play the $4,443.50 overnight high (ONH). Initiative trade beyond the ONH could reach as high as the Fibonacci extensions at $4,446.25 and $4,449.25.

In the worst case, the S&P 500 trades lower; activity below the $4,434.75 LVNode puts in play the $4,429.25 high volume area (HVNode). Initiative trade beyond the HVNode could reach as low as the $4,422.75 balance area high (BAH) and $4,415.75 LVNode.

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.

Initiative Buying (Selling): Buying (selling) within or above (below) the previous day’s value area.
Graphic: 30-minute profile chart of the Micro E-mini S&P 500 Futures. Graphic updated 6:45 AM ET.

News And Analysis

China goes after online insurance amid wide crackdown.

U.S. infrastructure bill to provide a small boost to growth.

Traders brace for a debt ceiling ‘hot potato’ rattling rates.

China has partly shut down the world’s third-busiest port.

Delta variant is bringing a midsummer pause for airfares.

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.

Categories
Commentary

Daily Brief For August 11, 2021

Market Commentary

Equity index futures are sideways and divergent.

  • Senate passes new $3.5T economic blueprint.
  • Ahead: Data on CPI, Federal Budget Balance.
  • Sideways chop as participants position for CPI.

What Happened: U.S. stock index futures auctioned sideways ahead of data that would provide clarity on the direction of consumer prices.

According to Moody’s: “The CPI rose 0.9% in June, but it likely moderated in July, since we don’t expect used car prices to have risen as quickly as they have recently. Elsewhere on the inflation front, we will get data on producer and import prices. After the release of the CPI and PPI, we will have a good idea of what the core PCE deflator, the Fed’s preferred measure of inflation, did in June.”

Ahead is also data on the Federal Budget Balance and Fed speak.

Graphic updated 6:45 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index and Gamma. A positive Dark Pool Index reading is bullish. At the same time, the higher (lower) the gamma, the less (more) volatility. SHIFT Search data used for options activity. Note that options flow is sorted by the call premium spent; if green and more (less) positive then more (less) was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:45 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, the best case outcome occurred, evidenced by initiative trade above the $4,422.75, a prior balance area high (BAH), up to the $4,438.50 Fibonacci extension. 

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 a change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend). 

This advance happened in spite of top-line divergences, as well as lackluster metrics with respect to market liquidity and breadth.

Unlike on the NYSE side of things (which sported positive breadth with an inflow into stocks that were up versus down), internals on the Nasdaq were markedly weak with negative breadth supporting a liquidation in the Nasdaq 100 (INDEX: NDX). 

In terms of market liquidity, the cumulative volume delta – a measure of buying and selling power as calculated by the difference in volume traded at the bid and offer – revealed no actionable divergences.

Coming into today’s Consumer Price Index (CPI) release, participants will notice the S&P 500, in particular, trading within a 3-day balance area, above a prior 10-day balance area. In short, since last week’s breakout, little has changed. What was thought would happen (i.e., expansion of range) didn’t happen.

Instead, trade was volatile, establishing excess just a tick short of the $4,438.50 Fibonacci extension as participants likely worked to position themselves for the mid-week data dump. As a result, until after the first couple of impulses on the CPI release, participants are cautioned on early trade.

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.

Moreover, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,422.75 BAH likely puts in play the $4,433.00 untested point of control (VPOC). Initiative trade beyond the VPOC could reach as high as the $4,438.25 regular trade high (RTH High) and $4,446.25 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,422.75 BAH likely puts in play the $4,415.75 low volume area (LVNode). Initiative trade beyond the LVNode could reach as low as the $4,411.00 VPOC and $4,406.25 LVNode.

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.

Significance Of Prior ATHs, ATLs: Prices often encounter resistance (support) at prior highs (lows) due to the supply (demand) of old business. These areas take time to resolve. Breaking and establishing value (i.e., trading more than 30-minutes beyond this level) portends continuation.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Graphic updated 6:45 AM ET.

News And Analysis

Earnings historically strong and policy transition.

Hackers steal $600M in likely largest DeFi theft.

Economic activity restart is real and broadening.

A turning point for markets meriting a hard look.

Biden administration to urge OPEC output boost.

The Senate passed a $550B infrastructure plan.

Delta forces hospitals to ration scarce ICU beds.

Mortgage applications rise with rates below 3%.

A systemic cyberattack presents risks for banks.

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.

Categories
Commentary

Daily Brief For August 10, 2021

Market Commentary

Equity index futures are sideways and divergent.

  • Taper talk, COVID-19 fears, infrastructure news.
  • Ahead: NFIB, productivity, unit labor, Fed speak.

What Happened: U.S. stock index futures auctioned sideways alongside COVID-19 fears, infrastructure, crypto regulation, and taper talk.

This comes as core inflation is expected to come in around 4.8%, “likely unhinging Powell and expediting the talk about talking about tapering as early as in September,” according to Nordea.

Ahead is data on the NFIB small-business index, productivity, unit labor costs, and earnings. Cleveland Fed President Loretta Mester speaks at 10:00 AM ET.

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index and Gamma. A positive Dark Pool Index reading is bullish. At the same time, the higher (lower) the gamma, the less (more) volatility. SHIFT Search data used for options activity. Note that options flow is sorted by the call premium spent; if green and more (less) positive then more (less) was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator. VIX reflects a reading of the CBOE Volatility Index from 0-100.

What To Expect: As of 6:30 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 the prior day’s regular trade, the best case outcome occurred, evidenced by sideways trade at the $4,422.75 balance area high (BAH). This is significant because the BAH marked a shift in tone (i.e., a transition from two-time frame trade, or balance, to one-time frame trade, or trend).

Given that the BAH was not lost, the default balance break scenarios remain in play (i.e., play the break rather than fade the edges). As a result, we monitor for rejection (i.e., a return inside of balance). This would portend a move to the opposite end of balance, or the $4,365.25 low volume area (LVNode) in the S&P 500 future.

Graphic: 65-minute candlestick charts of the cash-settled S&P 500 (INDEX: SPX), Nasdaq 100 (INDEX: NDX), Russell 2000 (INDEX: RUT), and Dow Jones Industrial Average (INDEX: DJI). The S&P 500, of the four index products covered, has yet to invalidate its breakout.

To note, briefly, yesterday’s rangebound trade came alongside divergences with respect to price, market liquidity, and market internals. 

For instance, breadth at the exchange level was negative with a minuscule inflow into stocks that were down, versus those that were up. The cumulative volume delta – a measure of buying and selling power as calculated by the difference in volume traded at the bid and offer – diverged from mid-afternoon prices inspiring confidence in responsive trade. 

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

Moreover, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,422.75 BAH puts in play the $4,429.25 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,433.25 regular trade high (RTH High) and $4,438.50 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,422.75 BAH puts in play the $4,415.76 LVNode. Initiative trade beyond the LVNode could reach as low as the $4,411.00 untested point of control (VPOC) and $4,406.25 LVNode.

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

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.

POCs: POCs are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

Significance Of Prior ATHs, ATLs: Prices often encounter resistance (support) at prior highs (lows) due to the supply (demand) of old business. These areas take time to resolve. Breaking and establishing value (i.e., trading more than 30-minutes beyond this level) portends continuation.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Graphic updated 6:20 AM ET.

News And Analysis

China’s top oil refiner said to cut run as delta hits.

Biden’s agenda teed up for Senate endorsement.

SoftBank cut China investments until more clarity.

Major shocks see a divergence in rating migration.

The fully vaccinated are still catching COVID-19.

Analysts are warning on buy now, pay later trend.

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.