Categories
Commentary

Daily Brief For June 29, 2021

Market Commentary

Equity index futures diverge, trade sideways.

  • COVID variants cause lockdowns.
  • Ahead are some economic reports.
  • RUT, DJI firming. SPX, NDX weak.

What Happened: U.S. stock index futures auctioned sideways ahead of some key releases. The Russell 2000 and Dow Jones Industrial Average firmed up relative to their peers, the S&P 500 and Nasdaq 100, the group leader.

This activity comes as banks boosted their dividends and uncertainties surrounding the COVID-19 delta-variant. Some reports suggest nearly half of Australia’s population is in lockdown, while Asian countries are looking to reduce the spread with mobility restrictions. Still, not all news is bad; some European countries are lifting restrictions on travel and OPEC may increase the supply of oil.

Of interest today is data around home prices, consumer confidence, and Fed speak.

Graphic updated 7:20 AM ET.

What To Expect: 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 initiative trade above the $4,257.00 Point of Control (POC), up to a new overnight high (ONH) at $4,283.00.

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.

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

Prior to getting onto what’s expected for today’s trade, it is important to note some ongoing activity in the options market. Specifically, participants, despite their commitment to higher prices (as evidenced by longer-dated call activity), are likely hedging against near-term risks, like the Jackson Hole Economic symposium used in the past to signal monetary policy changes (see the graphic below for more detail). This hedging, in conjunction with lackluster breadth and poor expansion of range, cautions participants on increased volatility; a focus should be made on relatively strong issues.

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 $4,271.00 POC puts in play the $4,283.00 ONH. Initiative trade beyond the ONH could reach as high as the $4,294.75 Fibonacci-derived price target. 

In the worst case, the S&P 500 trades lower; activity below $4,271.00 puts in play the HVNodes at $4,256.75, $4,239.50, and $4,229.00.

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. Notice (1) increased churn at higher prices, (2) minimal excess on composite profile, (3) poor expansion of range, as well as (4) poor, and rather unsupportive, low volume structures beneath current price. 
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 committing the most capital to call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside. Also, there was a meaningful bid in September puts on the S&P 500. This dynamic suggests participants, despite their commitment to higher prices, are hedging against near-term risks, like the Jackson Hole Economic Symposium.

News And Analysis

Economy | The Bank of Japan cuts some bond purchase targets. (BBG)

Markets | BlackRock warns U.S. stocks at risk from higher taxes. (BBG)

Markets | United Airlines confirmed 270 Boeing, Airbus jet order. (REU)

Markets | Wall Street funnels cash to investors post-stress-tests. (BBG)

Markets | FTC Facebook ruling slams brakes on tech’s legal foes. (Axios)

What People Are Saying

Innovation And Emerging Trends

FinTech | State Street is building out data and digital experiences. (BZ)

FinTech | Robinhood CEO backs SEC market modernization vision. (MI)

FinTech | ICAP launching crypto platform with Fidelity, StanChart. (BBG)

FinTech | JPMorgan buys an ESG investing platform, OpenInvest. (CNBC)

Markets | Cathie Wood’s ARK Invest to create bitcoin ETF, ‘ARKB’. (CNBC)

FinTech | Deutsche Boerse is buying Swiss fintech Crypto Finance. (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.

Categories
Commentary

Weekly Brief For June 27, 2021

Market Commentary

Key Takeaways: Equity index futures struggle to discover higher prices.

  • Biden’s infrastructure deal back on track.
  • Week Ahead: Many economic releases.
  • SPX struggles. NDX weak at a key level.
Graphic updated June 27, 2021, at 11:50 AM ET.

What Happened: Last week, U.S. equity index futures discovered higher prices alongside some positive economic and political developments.

Of interest was an agreement on infrastructure, successful Federal Reserve bank stress tests, a record for U.S. factory activity, among other things. 

Prior to the price rise, markets sold heavily on a shift in the Federal Reserve’s so-called dot-plot. Bond yields on the short-end of the curve rose while long-dated yields dropped in line with projections future inflation is easing. This flatter yield curve is a negative for cyclical-type companies which can’t pass on increased costs, thereby impacting sales and margins.

Moreover, both the S&P 500 and Nasdaq 100 established new all-time highs (ATHs). The Nasdaq 100, though, found responsive sellers at a zone of overlapping Fibonacci-derived price targets, weighing down the S&P 500, which had a difficult time expanding range, a usual sight for a healthy bull market.

Partially to blame is narrowing breadth at heightened valuations, as well as a shift in monetary and fiscal policy narratives. According to Bloomberg, while the broader market is near ATHs, the “[l]owest % of stocks [are] above 50-dma since 1999, when S&P hits record.”

This narrowing breadth, in conjunction with weak seasonality, potentially unsupportive market liquidity metrics, trade in the options market, as well as poor profile structures that offer little-to-no support on liquidations, suggests participants ought to beware of an increased potential to violently backfill.

To note, next week, participants will get more Fed speak, data on home prices, consumer confidence, employment, PMI, construction spending, home and vehicle sales, trade, and factory orders.

What To Expect: In the coming sessions, participants will want to focus their attention on where the S&P 500 trades in relation to Friday’s fairest price or Point of Control (POC).

Point of Control (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. 

In the best case, the index trades sideways or higher; activity above the $4,267.00 POC puts in play the $4,294.75 and $4,367.00 Fibonacci-derived price targets.

In the worst case, the index trades lower; activity below the $4,267.00 POC puts in play the $4,248.25 low volume area (LVNode) and $4,229.00 POC. Thereafter, if lower, participants ought to look for responses at the poor structure just below $4,200.00.

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: 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 committing the most capital to call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside.

News And Analysis

Economy | Support doesn’t provide a meaningful boost until mid-decade. (Moody’s)

Economy | Inflation jumps on base effects, supply; inflation largely transitory. (S&P

Economy | Forecasts for eurozone growth revised up on stimulus, mobility. (S&P)

Markets | Tesla recalls nearly 300K cars in China over cruise control issues. (CNN)

Markets | El Salvador looks to hand out up to $117M in bitcoin to its citizens. (Block)

Media | Fast 9 propels box office to its biggest weekend since the pandemic. (BBG)

Markets | Boeing’s updated 777 hit with new safety concerns from the FAA. (BBG)

Weather | A record heatwave is set to scorch Pacific Northwest, South CA. (NPR)

FinTech | UK regulator bans Binance from regulated activities in the country. (Block)

Economy | Spreads and cost shocks could double the rate of loss-making. (S&P)

Markets | Chances of moderately big moves back-to-back are independent. (Tasty)

Markets | Banks clear stress tests; expecting a boost to buybacks, dividends. (REU)

What People Are Saying

Innovation And Emerging Trends

FinTech | New cryptocurrency startup funding is projected to continue rising. (CB)

FinTech | Elon Musk may debate Jack Dorsey at an upcoming bitcoin event. (Block)

FinTech | Citigroup launches digital asset units within wealth management. (Block)

FinTech | Morgan Stanley adds investment to bring blockchain to markets. (Forbes)

Work | An FBI body language expert on communicating back in the office. (BBG)

COVID | An ancient viral epidemic involving coronavirus impacted genes. (Cell)

FinTech | Xi and the CCP turn on Jack Ma, Ant, and other Chinese fintech. (BBG)

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 16, 2021

Market Commentary

Index futures in balance.

  • Ahead: Housing starts, trade prices, FOMC.
  • Indices diverge and trade sideways to lower.

What Happened: U.S. stock index futures auctioned sideways ahead of an important Federal Open Market Committee (FOMC) announcement at 2:00 p.m. Eastern Time, today.

As stated in prior commentaries, the odds of substantial change to policy are low. Instead, participants will likely hear that despite Fed policy remaining unchanged, tools exist to combat inflation.

Also, before the open, China established orders limiting exposure to overseas commodities and U.K. consumer prices rose. Important releases, aside from the Fed decision, include data on housing starts and trade prices, as well as text on infrastructure.

Graphic updated 7:13 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 liquidation break that found acceptance below the $4,238.00 spike base. That is significant because it negated the knee-jerk, end-of-day bullishness of Monday’s session.

Liquidation Breaks: The profile shape suggests participants were “too” long and had poor location. This corrective activity enables favorable entry and exit.

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).

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 $4,234.25 high volume area (HVNode), which corresponds with the average price bought and sold (via the VWAP) since consumer price data was released last week, puts in play the $4,249.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,258.00 overnight high (ONH) and $4,270.25 Fibonacci price extension.

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.

Volume Weighed Average Price (VWAP): The average price at which a stock is traded over a certain horizon.

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 $4,234.25 HVNode suggests caution. It is likely participants will trade to the $4,227.75 HVNode. Thereafter, depending on how participants respond to a test of the HVNode, if lower, the $4,213.75 LVNode and balance area low (BAL) come into play, first. Initiating below the BAL is bearish. In that instance, if selling is aggressive, the $4,177.25 HVNode is in play.

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). Important to monitor where the indices close, today. Above balance high or trend, bullish. Below, that’s near-term bearish.
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), yesterday.

News And Analysis

Economy | U.K. inflation’s jump above BOE goal stirring a debate. (BBG)

Economy | China’s economic data disappoints as spending lags. (BBG)

Politics | Disagreements, low expectations as Biden and Putin meet. (REU)

Economy | U.S. retail sales drop, hinting at shift to services spend. (BBG)

Politics | China’s government made warning. Planes fly over Taiwan. (Axios)

Markets | Citi is latest to warn of bigger-than-expected trading drop. (BBG)

What People Are Saying

Innovation And Emerging Trends

FinTech | The big difference between a digital dollar and a CBDC. (BBG)

Markets | Everyone’s a rising star when debt is relatively cheap. (BBG)

Markets | Well-behaved bubbles often make history. An analysis. (a16z)

Markets | The latest blow to 60/40 model is an exodus of pensions. (BBG)

COVID | How prior coronavirus infections factor into herd immunity. (Axios)

Travel | You’ll soon be able to use your iPhone as ID at the airport. (Verge)

FinTech | Exchanges are looking to accelerate their cloud adoption. (TM)

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 15, 2021

Market Commentary

Index futures exit balance, discover higher prices.

  • The calm before the storm (FOMC).
  • Ahead: Production, PPI, retail sales.
  • Indices trade higher, then sideways.

What Happened: U.S. stock index futures traded higher ahead of key releases on U.S. industrial production, producer prices, and retail sales. Tomorrow, of bigger concern, is Wednesday’s Federal Open Market Committee (FOMC) rate decision.

As stated in Monday’s commentary, the FOMC will likely not change its forward guidance on interest rates or asset purchases. That’s according to Moody’s which noted: “The statement will likely strengthen the FOMC’s assessment of the acceleration in inflation and possibly mention the central bank has the tools to address inflation if needed. This would be an effort to keep long-term inflation expectations in check.”

Graphic updated 6:43 AM ET.

What To Expect: Tuesday’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 potential for immediate directional opportunity. 

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,249.00 minimal excess high.

Initiative Buying: Buying within or 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.

This move higher, across the broad market, comes as participants attempt to jack up prices in accordance with their views on issues like inflation, COVID-19, employment, supply chains, and more. Adding, measures of breadth indicate index constituents are participating.

Graphic: Advance/Decline Lines for broad market indices suggest breadth has improved, via MarketInOut.

On the other hand, metrics, such as S&P 500 skew – a measure of perceived tail risk and the chances of a black swan event – suggest participants are pricing the slope of implied volatility higher. At the same time, sentiment cooled and individual stock volatility rose.

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 $4,238.00 spike base puts in play the $4,249.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,258.00 overnight high (ONH) and $4,270.25 Fibonacci price extension.

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.

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 $4,238.00 spike base puts in play the $4,229.00 point of control (POC). Thereafter, if lower than the $4,227.00 composite high volume area (HVNode), the $4,213.75 balance area low (BAL) comes into play. 

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). The S&P 500 and Nasdaq 100 follow-through on breakouts. Russell struggles with past peaks. Dow puts in reversal candle at a longer-term trendline.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below in the cash-settled S&P 500 Index (INDEX: SPX), Monday. The same is true for the cash-settled Nasdaq 100 Index (INDEX: NDX). Note, however, a bid in far out-of-the-money calls on Nasdaq, through FOMC. This activity supports a rotation back into technology and growth, possibly.

News And Analysis

Politics | China calling U.S. ill after Biden rallies G-7 against Beijing. (BBG)

Politics | EU, U.S. agree to a five-year truce on Boeing-Airbus trade. (BBG)

Economy | EU is set to lift travel curbs for U.S. residents this week. (BBG)

Politics | House antitrust bills taking a tight aim at technology giants. (Axios)

Economy | Dimon said JPMorgan hoarding cash due to inflation. (CNBC)

What People Are Saying

Innovation And Emerging Trends

Politics | White House releases national strategy for domestic terror. (Axios)

FinTech | Mark Cuban suggesting ‘banks should be scared’ of DeFi. (CNBC)

Economy | The bubbliest housing markets flash 2008-type warnings. (BBG)

FinTech | Bitcoin’s most significant code improvement was approved. (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 14, 2021

Market Commentary

Index futures balance and attempt to discover higher prices.

  • Ahead: Fed 2-day policy meeting.
  • Indexes trade sideways to higher.

What Happened: U.S. stock index futures auctioned sideways-to-higher, ahead of an impactful Federal Reserve policy meeting.

Further, it is likely that cost-push inflation will be the main driver of inflation into next year. That is according to Moody’s which suggests the Fed is betting on this, too. If wrong, however, it would be due to a wage-price spiral which is still unlikely to occur given that the economy is not near full employment.

Adding, the Federal Open Market Committee (FOMC) will likely not change its forward guidance on interest rates or asset purchases; “The statement will likely strengthen the FOMC’s assessment of the acceleration in inflation and possibly mention the central bank has the tools to address inflation if needed. This would be an effort to keep long-term inflation expectations in check.”

Graphic updated 6:51 AM ET.

What To Expect: Monday’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 the potential for immediate directional opportunity. 

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,227.00 high volume area (HVNode). This is significant because that particular level marks a pivot (i.e., above = bullish, below = bearish) 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.

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 $4,239.50 regular trade high 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.

Excess: A proper end to price discovery; the market travels too far while advertising prices. Responsive, other-timeframe (OTF) participants aggressively enter the market, leaving tails or gaps which denote unfair prices.

In the worst case, the S&P 500 trades sideways or lower; activity below the $4,239.50 puts in play the HVNode pivot at $4,227.00. If lower, the $4,213.75 low volume area (LVNode) comes into play first. Thereafter, participants ought to look for responses at the $4,206.25, $4,198.75, and $4,177.25 HVNodes.

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 where each index is trading in relation to resistance.
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

Economy | Goldman: ‘Too big to fail’ may not apply in China anymore. (BBG)

Economy | U.K.’s Johnson set to announce a delay to end restrictions. (REU)

Markets | Reasons to question retail-driven meme stock craze narrative. (SG)

Markets | SEC plans market structure review amid meme stock frenzy. (WSJ)

Markets | Russell index rebalancing bringing meme stocks mainstream. (BBG)

Markets | Bitcoin higher on news Tesla will use when mining is cheaper. (BBG)

What People Are Saying

Innovation And Emerging Trends

Economy | Americans hoarded money to survive during the pandemic. (BBG)

Markets | Market veterans are mourning the slow death of historic pits. (FT)

FinTech | Investors are craving more of the payments company Stripe. (WSJ)

Economy | A great resignation wave could be coming for companies. (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

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

Weekly Brief For May 23, 2021

Editor’s Note: Happy Sunday, everyone!

A lot of new subscribers this week in light of Physik Invest’s webinar with Benzinga. If you want access to the slides presented, click here.

Additionally, I am honored for your decision to follow along and will do my best to provide an objective, “no fluff” view into the who, what, when, where, why, and how in finance and technology.

Quick note, from May 25 to May 28, the daily newsletter will be off as I will be on a trip. It would not be fair for me to provide lackluster content since I won’t have all the tools at my disposal.

That said, I’ll try to be objective and concise in today’s note to ensure you have the proper direction for the volatile trade ahead.

Market Commentary

Key Takeaways: Index futures in balance.

  • Bitcoin’s weekend crash churns stomachs.
  • Tone on adjusting monetary policy altered.
  • Indices were sideways-to-higher last week.

What Happened: Last week, U.S. stock index futures auctioned sideways-to-higher, as participants looked to price in emerging dynamics with respect to rising inflation, fiscal and monetary tightening, COVID-19 concerns, political risks, and the like. 

In pricing in these dynamics, the movement was both volatile and mechanical, halting short of key visual references suggesting the participants involved were short-term (i.e., technically driven) in nature.

Adding, amid this rotation, quite a bit of poor structure was 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.

Holistically, 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.

Just last week, the Federal Reserve’s minutes showed that some on the committee were interested in tapering discussions. 

“It was a surprise to hear the talk about Fed tapering,” Joyce Chang, JPMorgan’s chair of global research, said. “The market had been thinking there might be a couple of months before you really saw this particular issue come into focus.” 

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 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.

Graphic: JPMorgan Chase & Co (NYSE: JPM) analysts believe yields on the 10-year note will stay rangebound before breaking higher this summer, via The Market Ear.

How may the market absorb a move higher in rates? Looking back, according to The Market Ear, during the so-called Taper Tantrum, in the early 2010s, rates settled in a wide range, and equities rallied big. Adding, research by JPMorgan Chase & Co (NYSE: JPM) suggests equities may be getting cheap with reflationary themes the go-to play, still.

In support, during the May 19 reversal, in the S&P 500 and Nasdaq 100, participants increased exposure to the upside with relatively cheap, longer-dated calls.

Still, overall, the flows point to a lot of opportunistic hedging (see graphic below).

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. To note, however, participants began paying up for longer-dated upside exposure (evidenced by call activity).

What To Expect: In the coming sessions, participants will want to focus their attention on where the S&P 500 trades in relation to its $4,177.25 composite 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.

In the best case, the index trades sideways or higher; activity above the $4,177.25 HVNode puts in play 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 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 $4,122.25 HVNode puts in play the $4,071.00 POC. Thereafter, if lower, 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: 65-minute 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 Russell’s “toppy” rotation, and similar pullbacks to trend in the S&P 500 and Nasdaq. One last push, higher?
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for last week. Though activity in the options market was primarily concentrated in short-dated tenors, increased trade in farther-dated call-side strikes is observed as a commitment to higher prices.

News And Analysis

Markets | Rotation from growth into value strengthens bull market. (ARK)

Recovery | Two COVID shots effective against the India variant. (REU)

Economy | U.S. inflation is transitory and consistent with recovery. (S&P

Crypto | Google search volume for cryptocurrency breaks ATH. (Block)

Economy | PBOC will maintain its exchange rate basically stable. (BBG)

Markets | Global chip shortages cost automakers 5% of production. (Fitch)

Markets | JPMorgan cross-asset strategy head warns of drop. (BBG)

Markets | Nomura, UBS, UniCredit fined over bond trading cartel. (TT)

Recovery | CDC probes reports of myocarditis in the vaccinated. (Axios)

Economy | U.S. home prices push to record highs, buying slows. (WSJ)

What People Are Saying

Innovation And Emerging Trends

FinTech | How cryptocurrency fits into Brazil’s vision for banking. (Block)

FinTech | Major Asia-Pacific region banks upping their fintech bets. (S&P)

FinTech | U.S. Federal Reserve plans to publish a paper on CBDC. (Block)

Real Estate | Manhattan’s apartment vacancy rate stubbornly high. (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 20, 2021

Market Commentary

Index futures in balance.

  • Federal Reserve considers taper.
  • Ahead: Business outlook, claims.
  • Indexes in prior-range, sideways.

What Happened: U.S. stock index futures auctioned within prior-range, overnight, ahead of fundamental releases such as the Philadelphia Fed Business Outlook and claims data.

Graphic updated at 7:30 AM EST.

What To Expect: 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 responsive trade above the $4,069.25 high volume area (HVNode), which is significant because that value marked the other end of a micro-composite low volume 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.

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

Further, this activity is happening in the context of concerns over rising inflation, which may prompt monetary authorities to ease back on stimulus. Yesterday, the Federal Reserve’s minutes showed that some on the committee were interested in tapering discussions. 

“It was a surprise to hear the talk about Fed tapering,” Joyce Chang, JPMorgan’s chair of global research, said. “The market had been thinking there might be a couple of months before you really saw this particular issue come into focus.”

Why is this – inflation – a concern? 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 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 are still rangebound; rates on the 10 Year T-Note sit below their March high and are likely to continue higher, which the market will likely absorb.

For today, beyond fundamental context, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,104.75 low volume area (LVNode) has the potential to reach up to the $4,122.25 HVNode. Initiative trade beyond the $4,122.25 HVNode could reach as high as the $4,134.00 spike base (a pivot on the composite profile; 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).

In the worst case, the S&P 500 trades lower; activity below the $4,069.25 HVNode targets a repair of the minimal excess low at $4,055.75. Thereafter, on a failed response, prices may continue lower, below the $4,050.75 LVNode boundary. In such a situation, caution longs. The potential exists to trade to the POCs at $4,015.00 and $4,001.00, if not even lower.

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.

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: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: 65-minute 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), May 19. To note, however, participants were paying up for longer-dated upside exposure (evidenced by call activity). Note the December calls trading in the NDX and June calls in SPX.

News And Analysis

Recovery | New COVID-19 coronavirus cases fell by 20% in the last week. (Axios)

Economy | Central bank taper timelines are now starting to come into focus. (Axios)

Recovery | Vaccine boosters could be necessary as soon as September. (Axios)

Technology | Cisco says shortages will disrupt supply chains for rest of year. (FT)

Economy | Recovery funds increase investment but long-term gains uncertain. (Moody’s)

Energy | China’s industrial commodities slide after warning of crackdowns. (REU)

Travel | The U.S. is weighing changes to pandemic air travel restrictions. (REU)

Economy | Refinance volumes increase for the second week despite rate bump. (MND)

Economy | Inflation surveys, market pricing consistent with what Fed wants. (Barrons)

What People Are Saying

Innovation And Emerging Trends

FinTech | New digitial exchange offers gold exposure and funding for miners. (REU)

Crypto | Sh*t coin billionaire: tales from the fringe of the cryptocurrency craze. (BBG)

Crypto | China deepens its fintech dominance with new digital currency. (Diplomat)

Crypto | Central bank digital currencies could disrupt financial systems. (Fitch)

FinTech | OCC chief signals new direction on bank supervision and fintech. (AB)

FinTech | Stripe betting on creator economy powered by likes of Clubhouse. (BI)

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 2, 2021

Happy Sunday! Markets were choppy, ending the week flat-to-down. This came after President Joe Biden’s joint session of Congress, Fed Chair Jerome Powell’s assessment of the economy, and blowout earnings by heavily weighted index constituents.

The following commentary on U.S. broad market equity indices will discuss what happened, why it matters, what to expect, and how participants can position themselves for the coming week.

Market Commentary

What Happened: U.S. broad market indices closed the week out flat-to-down after a failed attempt to break higher on Thursday, April 29. Last week’s action suggests participants are looking for information to initiate a directional move.

  • Policy leaders, creators: Inflation pockets transitory.
  • Ahead: Data on labor, manufacturing, and earnings.
  • Markets balancing, positions for directional resolve.
Updated: 10:00 AM EST Sunday.

Why It Matters: The sideways action during last week’s trade came after a lengthy run, higher. 

The S&P 500, in particular, from its March 2020 low, is up over 90%.

That said, as investors enter into a new month, popular news outlets are beating the drum of an old adage: “Sell in May and go away.”

Is there any truth to this statement? It depends on perspective.

Historically speaking, the period spanning May to October is generally weak. On average, the S&P 500 is up as high as +2% during this six-month period.

“Stocks are up more than 87% from the March lows, suggesting a well-deserved pullback during these troublesome months is quite possible,” LPL Financial Chief Market Strategist Ryan Detrick said in a recent blog post. “But with an accommodative Fed, fiscal and monetary policy, along with an economy that is opening faster than nearly anyone expected, we’d use any weakness as an opportunity to add to positions.”

Adding, trends are changing, though; stocks have been higher during these so-called weak months 8 out of the past 10 years, according to LPL Research. 

Graphic by LPL Research. Data from FactSet. 

So, with that, in maintaining objectivity, we zoom out and ask a few questions.

  1. Where are we in relation to the prior week’s range? Overlapping.
  2. Is the market’s attempt to go in a certain direction supported? No. After a failed balance-area breakout, participants rotated and accepted prices back in the prior range, as evidenced by unchanged value-area placement, the area where 70% of prior trade (i.e., 1 standard deviation) is conducted.
  3. Is the technical and fundamental narrative supportive of current prices? Technically, the market is in an extended uptrend. However, despite value-area placement suggesting a validation of higher prices, market liquidity metrics point to distribution, the opposite of accumulation.

Now, we analyze other factors in play.

  • Real Yields: Alongside April’s FOMC — at which the Federal Reserve left rates unchanged and asset purchases steady — 10-year real yields are on track for their biggest drop since last summer. Low real rates may catalyze risk assets as the present value of their future earnings become more attractive
  • Capital Gains Tax (CGT): The White House expressed its desire to raise the federal CGT rate to 43.4% for wealthy individuals. However, as Goldman Sachs Group (NYSE: GS) sees it, Congress is likely to settle on a more modest increase. Adding, weak S&P 500 returns, historically, going into CGT hikes are short-lived.
  • Low Rates, Debt Expansion: Such dynamics incent market participants to take risks, causing destabilizing factors to brew. As Ambrus Group’s Kris Sidial says, “The growth of structured products, passive investing, the regulatory standpoint that’s been implemented with Dodd-Frank and dealers needing to hedge off their risk more frequently than not” are all part of a regime change that’s affected the stability of markets.
  • Positioning: According to Nomura data presented by The Market Ear, CTAs have taken their positions too far on the long side, reaching levels last seen prior to the 2018 Volmageddon. Additionally, the (1) SPDR S&P 500 ETF Trust (NYSE: SPY) and the (2) Invesco QQQ Trust Series 1 (NASDAQ: QQQ) funds saw some of their biggest outflows. At the same time, certain breadth metrics are diverging from current prices while the SPDR S&P 500 ETF, cash-settled S&P 500 Index, and Invesco QQQ saw sizable call-side bets trade, Friday. 
  • Earnings Reaction: Last week, heavily weighted index constituents reported blowout earnings. The reaction was muted, leaving broad market indices flat-to-down. One explanation is that the expectations, going into the events, were too high. Another is that the equity market is priced to perfection, at this stage of the recovery, and further advances will be supported by the rotation into cyclical parts of the market — financials, energy, and value. 
  • Option 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. According to SpotGamma, a provider of actionable options insights, on Friday, up to 30% of the S&P 500 and Nasdaq 100’s gamma rolled off which may allow the indices an opportunity to directionally resolve.

So, in summarizing this section, technically, the market is bullish, supported by the prospects of a healthy rotation. In the coming week, given increased clarity on policy and a sizable derivatives expiry, participants may see directional resolve.

What To Expect: An increased potential to resolve directionally.

In addition, metrics, like price movement, market liquidity, and speculative derivatives activity, confirm participants’ bullishness and opportunistic hedging in light of an acceleration in the global restart and a turn in flows, the result of an apparent shift in consumer preferences, from saving and investing to spending.

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 ending April 30. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $400.000, which corresponds with $4,000.00 in the cash-settled S&P 500 Index (INDEX: SPX).

What To Do: In the coming sessions, participants will want to pay attention to where the S&P 500 trades in relation to its $4,186.75-$4,110.50 balance area. 

Balance (Two-Timeframe Or Bracket): Rotational trade that denotes current prices offer favorable entry and exit. Balance-areas make it easy to spot change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).

Any activity above (below) the balance-area high suggests participants are interested in discovering higher (lower) prices. Any activity within the balance area suggests participants are looking for more information to base their next move; in such case, responsive buying and selling is the course of action. 

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

Initiative trade below the balance-area low suggests an inclination by participants to revert to the mean and repair some of the poor structure left behind prior discovery. Initiative trade above the balance area puts in play the $4,210.75 minimal excess rally-high, and the cluster of price extensions at and above $4,200.00, typical price targets based on Fibonacci principles.

Initiative Buying (Selling): Buying (selling) within or above (below) previous price acceptance.

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.

So, in the best case, the S&P 500 makes an attempt to balance or discover prices as high as $4,300.00. In the worst case, participants look to auction the S&P 500 into prior poor structures and low-volume areas (LVNodes) that ought to offer little-to-no support.

More On Volume Areas: A structurally sound market will build on past areas of high-volume (HVNode). Should the market trend for long periods of time, it will lack sound structure (identified as a low-volume area (LVNode) 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.

News And Analysis

Markets | U.S. builders produced record share of homes with hot market. (BBG)

Economy | Consumer spending, labor cost data suggests inflation warming up. (REU

Trade | Baltic Dry Index breaks 3,000 points in more than a decade on prices. (TW)

Wealth | Rich Americans fleeing tax hikes may turbocharge the shift to ETFs. (BBG)

Markets | Fed’s Robert Kaplan warns on ‘imbalances,’ wants to talk taper. (REU)

Markets | A volatility quant nets $540 million as momentum trades boom. (BBG)

Lending | States are investigating predatory subprime auto lenders. (Jalopnik)

Markets | Record metals prices catapulted mining profits beyond big oil. (BBG)

Medicine | Biden’s ARPA-H agency to ‘end cancer’ modeled after Darpa. (TC)

Markets | Bond market’s inflation bulls get Powell’s go-ahead to double down. (BBG)

Markets | Bridgewater Co-CIO sees ‘fair amount’ of stock market in bubble. (BBG)

Markets | Retail investors could counter the much-anticipated correction. (SA)

Economy | Warren Buffett denounces SPACs and Robinhood at meeting. (Axios)

Markets | Crypto’s shadow currency surges past deposits of most U.S. banks. (BBG)

Technology | Roku says it may lose YouTube app after Google’s demands. (Axios)

Economy | Ex-Treasury Secretary Summers on scarcity of workers, inflation. (BBG)

Markets | Parametric fund earns ‘Gamma Hammer’ moniker with its bets. (FT)

What People Are Saying

Innovation And Emerging Trends

FinTech | Apex Fintech has blow-out earnings ahead of NYSE listing. (BZ)

FinTech | How to attract large investors to your direct investing platform? (TC)

FinTech | New fintech groups form as industry scrutiny is ramping up. (S&P)

FinTech | Cryptocurrency bank wins OCC approval to form de novo. (S&P)

Markets | CME eyes wider customer base with micro bitcoin futures. (TB)

FinTech | Coinbase plans to acquire data and analytics platform Skew. (TB)

FinTech | How U.K.-based Lendable is powering fintechs across EMs. (TC)

FinTech | Amid the IPO gold rush, how should we value fintech startups? (TC)

FinTech | 10 fintech headhunters you need to know for recruiting to talent. (BI)

FinTech | U.K. banks speed up plans to ax branches, switch to digital focus. (S&P)

Medicine | Kevin O’Leary-backed MindMed has uplisted on the Nasdaq. (BZ)

Media | Creators are making lots of money selling Google spreadsheets. (Mashable)

Media | As newsletter advertising grows, advertisers opting for quality. (ADWK)

About

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

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

Disclaimer

At this time, Physik Invest does not manage outside capital and is not licensed. In no way should the materials herein be construed as advice. Derivatives carry a substantial risk of loss. All content is for informational purposes only.

Categories
Commentary

Daily Brief For April 29, 2021

Market Commentary

Index futures in price discovery mode.

  • Market up on earnings, Fed support.
  • Ahead: Earnings and GDP forecasts.
  • Futures out of balance, off new highs.

What Happened: U.S. stock index futures auctioned higher overnight after President Joe Biden’s joint session of Congress, Fed Chair Jerome Powell’s assessment of the economy, and blowout earnings by heavily weighted index constituents. 

Graphic updated at 8:20 AM ET.

What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM EST) will likely open on a gap, outside of prior-range and -value, suggesting the potential for directional opportunity.

Balance-Break + Gap Scenarios: Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area. 

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.

Adding, overnight, Wednesday’s best-case outcome occurred, evidence by initiative trade beyond the S&P 500’s $4,186.75 ledge. Thus far, the index has taken out all major upside references.

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

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

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

To note, the Fed strengthened its assessment of the economy and reaffirmed the need for aggressive support. 

Charlie Ripley, Senior Investment Strategist for Allianz Investment Management states: “With no meaningful change to monetary policy or communication, this meeting was simply a message to market participants to sit back and observe as the economic recovery continues to unfold.”

“For now, the Fed is maintaining a tight grip on the bond market, but it appears like a discussion on tapering bond purchases is right around the corner.”

Moving on, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity between the $4,203.25 Fibonacci-derived price extension and $4,186.75 ledge calls for balance or responsive trade. Initiative trade beyond the $4,203.25 price extension could reach as high as $4,228.00 and $4,263.00. 

Responsive Buying (Selling): Buying (selling) in response to prices below (above) 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 change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).

In the worst case, the S&P 500 trades lower; activity below the $4,186.75 ledge targets the $4,181.00 POC. 

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.

Thereafter, if lower, participants should look for a rotation to the other balance, or $4,110.50. 

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for April 28. Impactful activity in the options market was primarily concentrated on the call side, in short-dated tenors, in strikes as high as $425.00, which corresponds with $4,250.00 in the cash-settled S&P 500 Index (INDEX: SPX).

News And Analysis

Economy | Mortgage application volume falls despite lower rates. (MND)

Recovery | De Blasio says New York City plans full reopen in July. (Axios)

Economy | EU industry calls for a carbon border tax as prices soar. (FT)

Technology | Chip drought hits Apple, BMW, Ford as crisis worsens. (BBG)

M&A | LSEG, and Euronext completed the Borsa Italiana transaction. (TTN)

Economy | German joblessness unexpectedly rises on virus curb. (BBG)

Markets | Getting harder to argue that price increases are temporary. (BBG)

Commodities | Goldman sees commodities rallying on strong demand. (REU)

Economy | Roads across the world busier than at the start of the year. (BBG)

What People Are Saying

Innovation And Emerging Trends

FinTech | State Of Fintech Q1 2021 Report: Investment, Sector Trends. (CBI)

MiamiTech | ‘Miami Tech Week’ wasn’t planned. But the hype is infectious. (Wired)

FinTech | Ethereum jumps to high on a report of EIB digital bond issuance. (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, Canadian businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others, afforded him the perspective and know-how very few come by.

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

 Disclaimer

At this time, Physik Invest does not manage outside capital and is not licensed. In no way should the materials herein be construed as advice. Derivatives carry a substantial risk of loss. All content is for informational purposes only.