Categories
Commentary

Weekly Brief For June 12, 2021

Market Commentary

Key Takeaways: Index futures exit balance, attempt to discover higher prices.

  • One big thing: Inflation temporary.
  • Ahead: FOMC 2-day rate meeting.
  • Indices were divergent but higher. 

What Happened: Last week, the movement was both volatile and mechanical, halting short of key visual references.

This technically-driven trade denotes a lack of interest by institutional participants, at record highs; supply chain uncertainties and rising inflation, fiscal and monetary tightening, COVID-19 concerns, political risks, employment, and the like, are some of the emerging concerns larger participants have been looking to price in.

Further, on Thursday, participants were provided more clarity on the hot topic of inflation. 

Why is inflation such a hot topic? In short, as described in prior commentaries, inflation and rates move inversely to each other. Low rates stimulate demand for loans (i.e., borrowing money is more attractive). With the rapid recovery, though, market participants were fearful that rates would rise to protect the economy from overheating. 

Higher rates have the potential to reduce the present value of future earnings, making stocks, especially those that are high growth, less attractive. 

Further, despite hot prices, consumer price index (CPI) data, Thursday, suggested inflation would be temporary. Thereafter, U.S. stock index futures broke balance, and rates on the 10 Year T-Note went lower as participants now thought it was more likely the Federal Reserve would maintain its easy monetary policy.

Coinciding with that breakdown in yields, the Nasdaq 100 and Russell 2000 ended the week strong while the S&P 500 and Dow Jones Industrial Average traded relatively weak, taking back Thursday’s vertical price rise on the CPI number.

Notwithstanding, there has been an inclination to talk taper.

This was evidenced by some big option bets, earlier this year; of interest was one Eurodollar bet – carrying a notional value of $40 billion – focused on a potential surprise at the Jackson Hole symposium, used in the past to signal policy changes. 

Graphic: Eurodollar bet on SHIFT’s institutional platform. The purchase of 98.00 strike put options suggested traders were looking to add “two Fed hikes to [current] expectations.”

In a statement, Grant Thornton chief economist Diane Swonk said that despite investors not fearing an immediate change in course on monetary policy, inflation has surprised and will likely be the basis for taper talk at Jackson Hole, later this year. 

“I always expected tapering talk to begin more openly at the Jackson Hole meeting. It hasn’t changed my view. Some people thought the Fed would get closer to full employment before they did liftoff on tapering,” Swonk said.

In terms of the impact on equities, looking back, according to The Market Ear, even during the so-called Taper Tantrum, in the early 2010s, rates settled in a wide range, and equities rallied big. 

Graphic: Nasdaq 100 rallies in 2013 after rates settle in a wide range, via The Market Ear.

Moreover, next week is a large monthly options expiration (OPEX). This is noteworthy because 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. 

Options: If an option buyer was short (long) stock, he or she would buy a call (put) to hedge upside (downside) exposure. Option buyers can also use options as an efficient way to gain directional exposure.

Gamma: 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.

Aside from the Fed meeting and OPEX, some outlier risks remain; with VIX spreads at their lows, S&P 500 skew – a measure of perceived tail risk and the chances of a black swan event – rose dramatically over the past few weeks. At the same time, sentiment cooled considerably, while individual stock volatility increased the potential for another meme stock de-risking event.

What To Expect: In the coming sessions, participants will want to focus their attention on where the S&P 500 trades in relation to the $4,227.00 high volume area (HVNode), a pivot on the composite profile.

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.

Given the minimal excess high at $4,249.00, as well as the subsequent liquidation – a typical response – and lower value, participants can trade from the following frameworks.

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. 

Like Friday, in the best case, the S&P 500 trades sideways or higher; activity above the $4,227.00 high volume area (HVNode) puts in play the $4,249.00 minimal excess high. Initiative trade beyond that figure could reach as high as the $4,270.00 161.80% Fibonacci price extension and $4,294.75 127.20% extension.

In the worst case, the S&P 500 trades lower; activity below the $4,227.00 HVNode confirms a failed balance-area breakout. In such a case, the $4,213.75 low volume area (LVNode) comes into play first. Thereafter, if lower, participants ought to look for responses at the $4,206.25, $4,198.75, and $4,177.25 HVNodes.

Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Weekly candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Note the weakness in the S&P 500 and Dow Jones Industrial Average. 
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the larger cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), last week.

News And Analysis

Markets | Shorts squeezed; Fed (kind of) buys cryptocurrency bonds. (BBG)

Economy | Fed to announce taper in August or September on inflation. (REU)

Energy | OPEC sees more demand for oil with H2 growth quickening. (S&P)

Economy | The U.S. is experiencing temporary cost-push inflation. (Moody’s)

Economy | Pent-up demand, supply shortages improve credit recovery. (S&P)

Politics | Biden’s China policy emerging – and it looks like Trump’s. (WSJ)

What People Are Saying

Innovation And Emerging Trends

Venture | Funding, new unicorns, exits continue at a strong pace. (CB)

FinTech | G-7 dialogue on crypto to hasten the disintermediation. (Moody’s)

Trading | How to keep the gamma squeeze going with put sales. (SG)

Aviation | In aviation, the revolution likely will not be supersonic. (WSJ)

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, 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

Daily Brief For June 10, 2021

Market Commentary

Index futures attempting to exit balance, resume discovery.

  • U.S. and China resume their talks.
  • Ahead: U.S. inflation data for May.
  • Indexes auction sideways to lower.

What Happened: U.S. stock index futures auctioned sideways-to-lower alongside a resumption in talks between the U.S. and China. 

Key for today is the response to inflation data due an hour before the open. A hot reading may bolster the Fed’s case to withdraw stimulus.

Graphic updated 7:48 AM ET.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by the spike below a composite high volume area (HVNode). This is significant because that particular reference denotes a perception of value at higher prices.

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 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.

Further, this push-and-pull activity, over the past few sessions, comes as participants position themselves for the next directional move. Thursday’s CPI data will likely allow participants a better understanding of the Fed’s timeline to withdraw stimulus. 

“A new high since the early 1990s is in the expectations and Treasury yields have been sliding,” said Steen Jakobsen, chief investment officer at Saxo Bank. “It is difficult to determine how hot the number would have to be on the upside to jolt this market, while a large downside miss would perhaps be more surprising and elicit a larger market reaction in risk appetite.”

Still, though, the market is stuck in long-gamma.

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.

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 $4,227.00 HVNode puts in play the $4,231.00 VPOC. Initiative trade beyond the VPOC could reach as high as the ONH at $4,238.00 and $4,247.75 Fibonacci price extension.

POCs: POCs (like HVNodes described above) 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.

In the worst case, the S&P 500 trades lower; remaining below the $4,224.75 spike base denotes acceptance of Wednesday’s knee-jerk move from value. In such a case, lower prices are likely. Participants ought to focus their attention on whether the low at $4,206.00 holds. If not, the next level of interest is the $4,198.75 HVNode. Thereafter, attention moves to the $4,177.25 HVNode.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Note the weakness in Dow, as well as strength in Nasdaq and Russell. Russell’s strength could be construed as a demand for risk.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current in the cash-settled S&P 500 Index (INDEX: SPX), yesterday. On the other hand, in the Nasdaq 100 Index (INDEX: NDX), participants bid call strikes out 1-2 months. This activity is happening in conjunction with a move lower in yields. 

News And Analysis

Politics | China and U.S. agree to push forward trade, investment. (BBG)

Markets | Banks to face stiff bitcoin, crypto capital requirements. (BBG)

Markets | The SEC is looking to freshen up equity market structure. (Axios)

Economy | Half of pandemic unemployment may have been stolen. (Axios)

Economy | ECB sticks to bond-buying play despite improving outlook. (FT)

Economy | Global minimum tax ups multinational tax hikes prospects. (Fitch)

Markets | The meme stock frenzy not solely driven by retail traders. (CNBC)

What People Are Saying

Innovation And Emerging Trends

FinTech | Crypto is the ‘wild west’ needing consumer protections. (BBG)

Travel | Heavier passengers on planes mean new safety limits. (WSJ)

FinTech | Tether commercial paper disclosure puts it among giants. (FT)

Energy | G-7 debate accelerating a shift to electric cars, from oil. (BBG)

FinTech | Atom Finance launches white-labeled data experiences. (BZ)

FinTech | State Street adds digital unit to capitalize on crypto craze. (FT)

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, 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

Daily Brief For June 9, 2021

Market Commentary

Index futures in balance.

  • Manufacturing, tech bill is passed.
  • Ahead: Wholesale inventory data.
  • Indexes trade sideways overnight.

What Happened: U.S. stock index futures traded sideways overnight alongside the passage of a bill that bolsters U.S. manufacturing and technology initiatives.

At the same time, so-called meme stocks, like Clover Health, rocketed amid speculative commentaries on platforms like Reddit. This comes as risk metrics flash warnings ahead of the Fed’s annual meeting in Jackson Hole which, as discussed in prior commentaries, may mark a shift in policy tone.

Ahead is data on wholesale inventories and policy decisions by the Bank of Canada. 

Graphic updated 8:02 AM ET.

What To Expect: 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 responsive buying below balance, at the $4,208.25 high volume area (HVNode). This is significant because it suggested lower prices did not solicit initiative selling.

Responsive Buying: Buying in response to prices below an area of recent price acceptance.

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).

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 Selling: Selling within or below the previous day’s value area.

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 $4,224.75 HVNode puts in play the $4,232.25 low volume area (LVNode) and $4,238.00 overnight high (ONH). Initiative trade beyond the ONH could reach as high as the $4,247.75 Fibonacci-derived price target.

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

In the worst case, the S&P 500 trades lower; activity below the $4,224.75 HVNode puts in play the $4,213.75 LVNode and $4,208.25 HVNode. If lower, participants ought to look for responses at the $4,198.75 and $4,177.25 HVNodes.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Future.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for Tuesday. Activity in the options market was primarily concentrated in short-dated tenors, in call strikes as high as $435.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), Tuesday.

News And Analysis

Politics | Democratic, GOP House members pitch infrastructure. (BBG)

Energy | One password allowed hackers to disrupt Colonial Pipeline. (REU)

Politics | U.S. Senate passes sweeping bill to address China threat. (REU)

Economy | The World Bank sees the strongest rebound in 80 years. (BBG)

Economy | Surprise jump in U.S. wages gives inflation debate twist. (BBG)

Politics | Gig companies’ push for state worker laws faces division. (REU)

Economy | Delinquency rates inching closer to pre-COVID levels. (MND)

Politics | Hungary’s Orban calls global corporate tax plan absurd. (BBG)

COVID | Fauci urges U.S. vaccinations as harmful variant spreads. (BBG)

What People Are Saying

Innovation And Emerging Trends

Economy | Bottom 90% of Americans borrowing from the top 1%. (BBG)

FinTech | Man Group-Oxford quants say AI can predict stock moves. (BBG)

Technology | Price of batteries has declined by 97% over 30 years. (OWID)

Economy | Fed paying 0.00%. Such a deal. Depositors are flocking. (BBG)

Crypto | El Salvador passes a law to be 1st country to adopt BTC. (Axios)

Crypto | Hong Kong to explore digital currency, HKMA fintech plan. (SCMP)

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, 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

Daily Brief For June 8, 2021

Market Commentary

Index futures in balance.

  • News: Websites dark, new variant.
  • Ahead: Trade Balance and JOLTs.
  • Indices are volatile, trade sideways.

What Happened: U.S. stock index futures traded within range, overnight, after Monday’s wild, end-of-day price discovery. 

To note, multiple websites including the New York Times and Amazon Web Services came offline. At the same time, news of the government’s retrieval of the ransom paid to the Colonial Pipeline hackers came alongside selling in cryptocurrencies.

Ahead is the April U.S. trade balance and job openings data.

Graphic updated 7:00 AM ET.

What To Expect: On top of poor, low volume structure, the result of emotional trade in the day’s prior, Tuesday’s regular session (9:30 AM – 4:00 PM EST), in the S&P 500, will likely open just outside of prior-range and -value, suggesting a potential for immediate directional opportunity. 

Adding, during prior regular trade, the best case outcome occurred, evidenced by sideways trade above the $4,224.75 high volume area (HVNode). This area is significant because it marked a prior zone of supply.

The sideways-to-higher trade, over the past week, or so, comes alongside a continuation of the Fed’s dovish stance. As a result, traders are seeing a rotation into the technology-driven Nasdaq names, which may support a broader S&P 500 rally.

“We advocate looking through near-term market volatility and remain pro-risk, predicated on our belief that the Fed faces a very high bar to change its easy monetary policy stance,” BlackRock Investment Institute strategists led by Elga Bartsch wrote.

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 $4,224.75 HVNode puts in play the all-time, rally-high at $4,238.00. Initiative trade beyond $4,238.00 could reach as high as some minor Fibonacci extensions at $4,240.75 and $4,248.00. 

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.

In the worst case, the S&P 500 trades lower; activity below the $4,224.75 HVNode puts in play the $4,213.75 low volume area (LVNode). Thereafter, if lower, participants can look for responses at the $4,208.25 and $4,199.00 HVNodes.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. 
Graphic: 4-hour candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Relative strength shifts to the Nasdaq.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX). On the other hand, participants were most interested in call strikes at and above current prices in the cash-settled Nasdaq 100 Index (INDEX: NDX), yesterday. This shift in interest may support a broader rally. 

News And Analysis

Politics | Amazon to be covered by global tax deal despite thin margins. (BBG)

Politics | Schumer, Pelosi face new pressure as infrastructure talks stall. (BBG)

Politics | Canada is set to ease quarantine rules for vaccinated travelers. (BBG)

Economy | Lack of homes for sale eventually curbs affordability constraints. (MND)

Markets | Commodities crunch on stingy capital spending has no quick fix. (WSJ)

COVID | Gangrene, hearing loss show new variant may be more severe. (BBG)

Climate | The U.S. must work with allies to secure electric vehicle metals. (REU)

Markets | Meme stocks quickly turning the options market upside down. (WSJ)

What People Are Saying

Innovation And Emerging Trends

FinTech | Crypto exchange is going to extreme lengths on cybersecurity. (BBG)

FinTech | Central bank digital currencies may disrupt financial systems. (Fitch)

FinTech | MicroStrategy is selling corporate bonds to buy more bitcoin. (BBG)

Banking | De-globalization of retail banking, disruption of traditional models. (Axios)

FinTech | Colonial Pipeline ransom recovery a major moment for crypto. (NYT)

Trading | London Metals Exchange pedals back on closing trading ring. (WSJ)

Technology | NY project combines solar power with high-speed broadband. (Axios)

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, 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

Daily Brief For June 2, 2021

Market Commentary

Index futures in balance.

  • Traders position for upcoming catalysts.
  • Ahead: ECB report, auto sales, Fed talk.
  • Stock indices trading sideways to higher.

What Happened: U.S. stock index futures auctioned sideways overnight.

This came after the S&P 500, Nasdaq 100, and Dow Jones Industrial Average liquidated shortly after yesterday’s cash open. The Russell 2000, unlike its peers, held the top end of its range, signaling the potential of a rotation that could further broaden the bull market.

Not much is happening in terms of economic data. Friday’s U.S. payroll data will likely provide participants more clarity for a directional move.

Graphic updated 8:40 AM ET.

What To Expect: 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 worst-case outcome occurred, evidenced by a corrective liquidation that brought the S&P 500 back to valuable prices. 

This activity comes as participants are looking to position themselves for impactful releases like data on U.S. payrolls, which may shed a light on the Federal Reserve’s stimulus schedule.

“Investors would see a surge in payrolls growth as a sign that the Fed is more likely to move,” said Lauren Goodwin, portfolio strategist at New York Life Investments.

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 $4,205.25 point of control (POC) puts in play a micro-composite high volume area (HVNode) at $4,208.25 and low volume area (LVNode) at $4,215.75. Initiative trade beyond the two signposts could reach as high as the $4,224.75 HVNode and $4,238.00 overnight high (ONH). 

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 (like HVNodes described above) 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.

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

In the worst case, the S&P 500 trades lower; activity below the $4,190.75 overnight low (ONL) puts in play the $4,177.25 and $4,153.25 HVNode. On a cross of the $4,153.25 HVNode, the $4,122.25 HVNode and $4,071.00 POC come into play, also.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Nasdaq weakened while the Russell 2000 strengthened, yesterday. Rotations can broaden bull markets.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for June 1. Activity in the SPY was primarily concentrated in short-dated calls near the money.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDX: NDX). Noting a persistent interest in long-dated out-of-the-money Nasdaq calls.

News And Analysis

Markets | Low rates lift expected returns, fortify preference for equities. (BLK)

Security | Meat giant to reopen plants hobbled by a recent cyberattack. (BBG)

Health | So far, there is a low risk of human spread of H10N3 bird flu. (REU)

Economy | Housing boom may be cooling as mortgage demand drops. (CNBC)

Economy | U.S. inflation transitory but could become more persistent. (CNBC)

What People Are Saying

Innovation And Emerging Trends

Markets | Power of Muskonomics – credible strategy or cult personality. (FN)

Markets | Standard Chartered joins crypto rush after HSBC opts out. (BBG)

FinTech | Robinhood added new board members to advance IPO push. (WSJ)

FinTech | Nasdaq looks to amend opening auctions for retail interaction. (MM)

FinTech | The implications of BBVA’s shutdown on bank-fintech mergers. (AB)

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, 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

Weekly Brief For May 31, 2021

Market Commentary

Key Takeaways: Index futures in balance.

  • Best to assume the taper tantrum happened.
  • Ahead: Fed speak and data on employment.
  • Indices traded sideways-to-higher last week.

What Happened: Coming into the large May monthly options expiration (OPEX) and extended holiday weekend, U.S. stock index futures pinned, trading sideways-to-higher.

Options: If an option buyer was short (long) stock, he or she would buy a call (put) to hedge upside (downside) exposure. Option buyers can also use options as an efficient way to gain directional exposure.

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. 

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.

Furthermore, looking back, the movement in price was both volatile and mechanical.

After a short covering-like rally toward $4,200.00, the S&P 500 was responsively bought and sold at key visual references, suggesting a dominance by short-term participants.

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

The technically-driven trade denotes a lack of interest by institutional participants, at record highs; supply chain uncertainties and rising inflation, fiscal and monetary tightening, COVID-19 concerns, political risks, and the like, are some of the emerging concerns larger participants are looking to price in.

Of all the above risks, inflation remains the hottest topic.

Generally speaking, inflation and rates move inversely to each other. Low rates stimulate demand for loans (i.e., borrowing money is more attractive). With the rapid recovery, though, market participants fear that rates will rise to protect the economy from overheating.

Higher rates have the potential to reduce the present value of future earnings, making stocks, especially those that are high growth, less attractive. 

To note, however, rates remain range-bound; rates on the 10 Year T-Note sit below their March high and are likely to continue higher, which the market may absorb

How may the market absorb a rise in rates? During the so-called Taper Tantrum, in the early 2010s, rates settled in a wide range, and equities rallied big. Adding, some strategists, like Kit Juckes of Societe Generale SA (OTC: SCGLY) suggest it may be best to assume a tantrum has already happened.

“U.S. 10-year yields rose from a low of 1.4% in 2012 to 3% during their tantrum. In this cycle, the rise has been from 0.5% to a high just below 1.8%. That’s comparable in relative terms. The eventual peak in U.S. yields in 2018 was 3.25%. Can’t we accept that the taper tantrum has already happened? The important difference is that in the tantrum cycle, core CPI never got above 2 ½%. A bet on further bond weakness is a bet on inflation proving to be stickier than the Fed can cope with.”

Adding, research by JPMorgan Chase & Co (NYSE: JPM), as well as Goldman Sachs Group Inc (NYSE: GS), suggests equities may be getting cheap with reflationary themes being the go-to play. This sentiment would help explain the increased interest in S&P 500 and Nasdaq 100 call options.

Graphic: Equity valuations at their cheapest, relative to the macro in March 2009 and in the depth of the 1982 recession, according to Goldman Sachs Group Inc (NYSE: GS), via The Market Ear.
Graphic: SHIFT search suggests participants were becoming more interested in call strikes at and above current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), last week.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week prior. Activity in the options market was primarily concentrated in short-dated tenors, in strikes at and above $425.

Outlier risks remain, though; aside from the seasonally weak period, S&P 500 skew – a measure of perceived tail risk and the chances of a black swan event – rose dramatically over the past few weeks. At the same time, sentiment cooled considerably, while individual stock volatility increased the potential for a repeat of the GameStop Corporation (NYSE: GME) de-risking event.

Graphic: Goldman Sachs Group Inc (NYSE: GS) unpacks outlier risks based on the implied volatility of S&P 500 out-of-the-money options, via The Market Ear.

What To Expect: In the coming sessions, participants will want to focus their attention on where the S&P 500 trades in relation to the $4,197.25 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.

That said, participants can trade from the following frameworks.

In the best case, the index trades sideways or higher; activity above $4,197.25 has the potential to reach the $4,227.00 point of control (POC). Initiative trade beyond the POC could reach as high as first the $4,238.00 overnight all-time high (ONH) and then, the $4,294.75 Fibonacci-derived price extension, a typical recovery target. 

POCs: POCs (like HVNodes described above) 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. 

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

In the worst case, the index trades lower; activity below the $4,177.25 HVNode puts in play the $4,153.25 HVNode, first. Thereafter, if lower, the $4,122.25 HVNode and $4,071.00 POC come into play. 

On a cross through the $4,050.75 low volume area (LVNode), long-biased traders should beware of a rapid liquidation, as low as first the $4,015.00 and $4,001.00 POCs. In such a liquidation, odds favor a test of ~$3,970.00 50.00% retracement, as well as the $3,918.00 61.80% retracement and HVNode.

Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Weekly candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Nasdaq is primed for upside and has the potential to pull the S&P with it. 

News And Analysis

Trade | One of the world’s top ports expects delays on an outbreak. (BBG)

Markets | PBOC raises reserve ratio for foreign exchange holdings. (BBG)

Economy | Recovery solidifies in U.S., Europe, while EM faces risks. (Moody’s)

Markets | China bars banks from selling commodity-linked products. (REU)

Economy | Fed security purchases draw fire in hot U.S. housing market. (S&P)

Energy | Global oil demand is seen eclipsing India, Iran’s uncertainty. (S&P)

Economy | U.S. won’t experience stagflation over next few years. (Moody’s)

Economy | Non-government loans seeing a jump in forbearances. (MND)

Economy | U.S. speculative-grade corporate default rate to fall to 4%. (S&P)

Markets | Inflation, higher oil, stronger yuan point in same direction. (BBG)

Economy | U.S. retailers face headwinds from slowing sales, inflation. (S&P)

Markets | Everyone with bonds to liquidate had ample time to do so. (BBG)

What People Are Saying

Innovation And Emerging Trends

Markets | How recent growth in leveraged finance affects investors. (BZ)

Politics | Tech growth overshadowed by regulatory risks, challenges. (S&P)

Markets | Chamath: SPACs need more oversight and regulation. (BBG)

Politics | China moves to a three-child policy to boost its birthrate. (BBG)

Markets | Shakeout stirs debate over ether’s long-term potential. (BBG)

FinTech | Which banks are positioned for low rates, digital adoption. (S&P)

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, 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

Daily Brief For May 21, 2021

Market Commentary

Index futures in balance.

  • Global tax revamp is gathering pace.
  • Ahead: Home sales, PMI, Fed speak.
  • Indices sideways-to-higher overnight.

What Happened: U.S. stock index futures auctioned within prior-range, overnight, alongside calls for a global minimum corporate tax rate of 15%, data on existing home sales and PMI, as well as Fed speak.

Graphic updated 7:25 AM EST.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open near 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 beyond the S&P 500’s $4,134.00 spike base, which is significant because it marked a so-called pivot on the composite profile (i.e., above = bullish, below = neutral-to-bearish).

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).

Initiative Buying: Buying within or above the previous day’s value area.

This recent ongoing rotation at higher prices comes as participants have been attempting to price in emerging dynamics with respect to rising inflation, fiscal and monetary tightening, COVID-19 case rises, geopolitical conflict, and the like.

In pricing in these dynamics, the movement has been both volatile and mechanical, halting short of key visual references suggesting the participants involved are short-term (i.e., technically-driven) in nature. Adding, amid this rotation, quite a bit of poor structure has been cleaned up (i.e., low-volume areas), but still, judging by a lack of excess at certain points on the composite volume profile, odds point to limited conviction and commitment.

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.

The major takeaway? Without follow-through to the downside, it is difficult to get pessimistic. As the saying goes, “never short a dull market.” The case for higher prices, as high as $4,300.00-$4,400.00, per JPMorgan Chase & Co (NYSE: JPM) research remains in play.

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 $4,153.25 high volume area (HVNode) targets the $4,177.25 HVNode. Initiative trade beyond the $4,177.25 HVNode could reach as high as the $4,227.00 POC. 

In the worst case, the S&P 500 trades lower; activity below the $4,153.25 HVNode puts in play the $4,136.25 and $4,122.25 HVNodes. Trading below those two references is negative; participants should look for the $4,071.00 POC to offer some response.

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 (like HVNodes described above) 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: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Relative strength is shifting back to the Nasdaq.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 20. Activity in the options market was primarily concentrated in short-dated tenors, in call strikes at and above current prices.
Graphic: SHIFT search suggests participants were most interested in call and put strikes across available strikes in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), May 20.

News And Analysis

Economy | Global tax revamp gathers pace as Europe salutes U.S. proposal. (BBG)

Economy | Markets still pricing in first rate hike well ahead of Fed guidance. (Moody’s)

Economy | Housing outlook facing more uncertainty as 2022 growth revised. (MND)

Economy | Global corporate rating stabilization continues as recovery unfolds. (Fitch)

Economy | Uneven economic, population trends contribute to diverging credit. (Moody’s)

Economy | How the post-pandemic labor crunch is curbing U.S. manufacturing. (REU)

Economy | Eurozone business growth hits a high on services resurgence. (REU)

What People Are Saying

Innovation And Emerging Trends

FinTech | Nasdaq, Benzinga partner over actionable market intelligence. (BZ)

FinTech | Analysis: How to borrow cryptocurrencies with more certainty. (VV)

FinTech | MX adds Lexi Hall to empower regulatory innovation in fintech. (BZ)

Crypto | U.S. Treasury calls for stricter cryptocurrency rules, reporting. (TC)

Energy | Ford’s powerhouse EV F-150 can actually power your house. (TC)

FinTech | Harris, CHC discussed digital banking for Northern Triangle. (Axios)

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, 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

Daily Brief For May 17, 2021

Market Commentary

Index futures in balance.

  • Themes: Inflation, COVID outbreaks.
  • Ahead: Manufacturing, housing data.
  • Indices are lower but holding up well.

What Happened: U.S. stock index futures auctioned lower, overnight, alongside a so-called flight to safety. Bonds and metals were higher while risk assets, like equities and cryptocurrencies, were down.

At the same time, supply-side disruptions continue with coronavirus outbreaks in Asia; Taiwan’s benchmark index fell nearly 4% during overnight trade.

In terms of releases, participants are looking forward to Empire Manufacturing and the NAHB housing market index for May. Also, an Atlanta Fed conference begins, today.

Graphic updated at 7:00 AM EST.

What To Expect: Monday’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 Friday’s regular trade, the best case outcome occurred, evidenced by initiative trade up to the $4,177.25 high volume area (HVNode). This is significant because that level marks a major pivot on the composite profile (i.e., above = bullish, below = bearish-to-neutral). To note, however, participants were unable to introduce meaningful excess at the recovery high.

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.

It is important to touch on the push-pull dynamic in markets, over the past few weeks. 

Historically speaking, equities are in a seasonally weak period. At the same time, inflation and uninspiring economic data are major worries investors are attempting to price in. Despite these emerging themes, JPMorgan Chase & Co’s (NYSE: JPM) Marko Kolanovic, in a CNBC appearance, said that the market is a little oversold, and his S&P 500 target of $4,400.00 remains in play.

“I think market is now actually getting cheap, in some sense,” Kolanovic said. “I think we’re at the end of this upset. I think the market is going to go higher here. That said, we do still again prefer reflationary themes.”

Given the brief fundamental context, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,177.25 HVNode pivot may reach as high as the $4,227.00 POC. Initiative trade beyond the POC targets the $4,238.00 overnight high (ONH).

POCs: POCs (like HVNodes described above) 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.

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

In the worst case, the S&P 500 trades lower; activity below $4,177.25 has the potential to reach down, through the $4,129.25 and $4,069.25 HVNodes, to the $4,050.75 low volume area (LVNode). 

Trading beyond the LVNode, caution longs. The S&P 500 may rapidly discover lower prices, repairing the poor, low-volume structure down to the $3,979.50 Fibonacci retracement. Closeby is the $3,953.25 HVNode and $3,908.25 composite HVNode (a key response area).

Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), last week. It appears that participants were positioning themselves in strikes across further-dated expiries (e.g., June 18, 2021) suggesting more commitment.

News And Analysis

Trade | Surging corporate demand is upending global supply chains. (BBG)

Credit | Fiscal stimulus, borrower discipline behind loan asset quality. (Moody’s)

Economy | Households and most U.S. children to get monthly stimulus. (REU)

Travel | United to add more than 400 daily flights in July amid demand. (REU)

Trade | EU agrees to a partial truce with the U.S. over old Trump tariffs. (REU)

Markets | Companies flush with cash, ready to pad shareholder pockets. (WSJ)

What People Are Saying

Innovation And Emerging Trends

Travel | Bankers flee Wall Street, head home to virus-free Australia. (BBG)

FinTech | Crypto, blockchain must accept problems, lead in sustainability. (TC)

Energy | The electrification of everything: what you need to know. (WSJ)

FinTech | How you can build a DIY robot-advisor using Passiv. (BZ)

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, 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

Daily Brief For May 14, 2021

Editor’s Note: Thanks for being a loyal subscriber! If you think this newsletter is valuable, please consider sharing it. Other than that, have a great rest of your day!

Market Commentary

Index futures back in balance.

  • Selling slows, commodities take hit.
  • Ahead: A big day for data releases.
  • Index futures were higher overnight. 

What Happened: U.S. stock index futures auctioned higher overnight ahead of ECB minutes, data on retail sales, U.S. import and export prices, industrial and manufacturing production, business inventories, as well as sentiment figures.

Ongoing Theme: “Stocks with more attractive valuations and slower growth will do well in a higher-interest rate environment,” according to Louise Dudley, global equities portfolio manager at the international business of Federated Hermes. Expensive growth stocks, by contrast, “are sensitive to higher interest rates.” – Bloomberg

Graphic updated 7:00 AM EST.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 may open just outside 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 responsive trade up to and around the $4,117.00 POC, which is significant because it marked the most valuable price to trade at during a prior session.

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.

The rebound comes after violent downside discovery earlier in the week. After a failed balance-breakout, alongside weak economic data, the S&P 500 liquidated down to its balance-area low, a typical target on a failed balance break. Thereafter, prices were advertised below the balance area but did not attract aggressive sellers. Participants then rotated the index back inside the balance area suggesting they are seeking better prices to sell at or more information to base a directional move.

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 $4,133.75 50.00% Fibonacci retracement has the potential to trade up to the $4,177.75 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,227.00 POC. 

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.

In the worst case, the S&P 500 trades lower; activity below the $4,133.75 50.00% Fibonacci retracement puts in play the $4,122.75 HVNode, the $4,104.75 and $4,089.25 low volume areas (LVNodes), and lastly, the $4082.75 and $4,071.25 HVNodes. 

Trading below the $4,029.25 overnight low (ONL) suggests a continuation of the bear trend. Caution longs.

Overnight Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.
Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 13. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $406.00, which corresponds with ~$4,080.00 in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), May 13. Participants, unlike in prior sessions, are positioning themselves in longer-dated expiries suggesting more commitment. 

News And Analysis

COVID-19 | CDC lifts most mask guidance in a key step back to normal. (BBG)

Markets | The automotive chip-shortage cost estimate surges to $110B. (BBG)

COVID-19 | Singapore moves back toward lockdown as virus cases rise. (BBG)

Finance | JPMorgan, others to issue credit cards to people with no credit. (WSJ)

Housing | The U.S. housing market is hot — but Canada’s is even hotter. (FP)

Markets | Hedge fund titans pitch their top stock picks at Sohn Event. (BBG)

M&A | Canadian National Railway beat Canadian Pacific in KCS offer. (FP)

What People Are Saying

Innovation And Emerging Trends

FinTech | Musk well-positioned to steer cryptocurrency’s direction of travel. (FT)

Markets | Distressed HFs sit on cash and compete for crumbs to invest in. (Axios)

FinTech | Cryptocurrency company Coinbase posts a record Q1 revenue. (Axios)

Housing | If you sell a house these days, the buyer might be a pension fund. (WSJ)

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, 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

Daily Brief For May 12, 2021

Market Commentary

Index futures in balance.

  • Tugging as sectors push and pull.
  • Ahead: Consumer prices, inflation.
  • Indices settle, position for resolve.

What Happened: After responsive buying the day prior, U.S. stock index futures auctioned lower overnight, ahead of data on inflation.

Graphic updated at 6:35 AM EST.

What To Expect: 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 worst-case outcome occurred, evidenced by the initiative trade down to the $4,110.50 minimal excess low. Thereafter, responsive buying brought the S&P 500 back in range. Later, participants found it most favorable to transact at last Tuesday’s POC, a development that suggests visually-driven technical traders may be out in full force.

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

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.

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

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.

Further, this week’s early dip comes ahead of inflation figures that will provide clarity on emerging price pressures. Generally speaking, inflation and rates move inverse to each other. Low rates stimulate demand for loans (i.e., borrowing money more attractive). With the rapid recovery, though, market participants are fearful that rates may have to rise to protect the economy from overheating.

That’s pretty significant.

Higher rates may reduce the present value of future earnings, making stocks, especially those that are high growth, less attractive. To note, however, rates haven’t budged much since March. Rates on the 10 Year T-Note sit well below their March high.

That said, here is a quote to sum current conditions: “For an economy coming out of a pandemic, normal rules don’t apply,” said Matthew Cady, an investment strategist at Brooks Macdonald. “For broad sustained inflation you really need to see much tighter labor markets, and the bottom line is that the CPI out-turn due this week is very unlikely to change that picture.”

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 $4,141.00 POC targets first the $4,163.00 POC and then the $4,177.25 composite high volume (HVNode) pivot. Initiative trade beyond the pivot could reach as high as the $4,224.75 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.

In the worst case, the S&P 500 trades sideways or lower; activity below the $4,141.00 POC targets first the $4,103.00 excess low. Thereafter, if no response, participants may look for responses at the $4,128.00 and $4,093.00 POCs.

At this juncture, it pays not to be involved; the risk-to-reward of establishing new swing positions, in a tight trading range, is poor. Responsive trade is the course of action. Only after trading beyond the HVNode pivot, or excess low, may participants have the conviction to participate in initiative trades.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Dow is the strongest of the four. The Nasdaq is beginning to strengthen, relative to its peers. 
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 11. Activity in the options market was primarily concentrated in very short-dated tenors, in strikes as low as $396.00, which corresponds with ~$4,050.00 in the cash-settled S&P 500 Index (INDEX: SPX). Despite some size bets on both sides of the market, a short duration suggests an overall lack of commitment. 
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX), Tuesday. Exposure was concentrated in both the May and June monthly expiries.

News And Analysis

Commodities | Colonial faces deadline to decide on hacked pipeline restart. (BBG)

Politics | Israel and Hamas escalate deadly strikes as the U.S. calls for calm. (BBG)

Markets | SPAC fees to support banks through 2022 even as deals dry up. (BBG)

Markets | COVID-19 concerns, chip sell-off roil the Taiwanese stock market. (WSJ)

Markets | SEC warning over bitcoin futures risks in mutual fund investments. (BBG)

Markets | A higher U.S. corporate tax rate is not a key credit risk driver. (Fitch)

What People Are Saying

Innovation And Emerging Trends

Economy | Housing-market surge is making the cheapest homes the hottest. (WSJ)

Markets | Media account Litquidity Capital is the Meme King of Wall Street. (VOX)

FinTech | eBay joined the NFT frenzy, will allow sale of NFTs on its platform. (REU)

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, 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.