Categories
Commentary

Daily Brief For May 4, 2021

Market Commentary

Index futures attempt to exit balance.

  • Global reopening, vaccinations rising.
  • Ahead: Vehicle Sales, Factory orders.
  • Markets balance, position for resolve.

What Happened: U.S. stock index futures rejected a breakout attempt and explored lower prices, overnight.

Ahead are earnings, data on trade, factory orders, durable goods, and Fed speak.

Graphic updated 7:30 AM ET.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by trade below the $4,186.75 balance boundary, which is significant because it denoted a clear, visual break-out point.

Adding to our narrative, according to Joseph Fahmy, Investment Advisory Representative at Zor Capital, from here on out, either (1) growth stocks stabilize and move higher, or (2) weak breadth pulls down the overall market. 

Supporting this belief is a weak reaction to earnings, interest rate volatility, tax selling, as well as stretched sentiment.

Still, the market is in a technically bullish position. A break below the S&P 500’s minimal excess low at $4,110.50 would suggest a change in conditions and the potential for lower.

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

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

In the best case, the S&P 500 trades sideways or higher; crossing back into the prior day’s trading range, marked by the $4,181.00 regular-trade low (RTH Low), targets the $4,189.00 POC. Initiative trade beyond the POC could reach as high as the $4,194.25 low volume area (LVNode), and then the $4,205 POC. 

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

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

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

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

In the worst case, the S&P 500 trades lower; activity below $4,167.25 could reach as low as the $4,153.25 and $4,137.25 high volume areas (HVNodes).

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 May 3. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $413.00, which corresponds with $4,130.00 in the cash-settled S&P 500 Index (INDEX: SPX).

News And Analysis

Politics | Biden open to options on spending as Congress takes over. (BBG)

Economy | Near-term volatility in inflation as economic restart progresses. (BLK)

Markets | Robinhood raked in $331 million from clients’ trading activity. (CNBC)

Economy | Metrics show strong U.S. business sentiment hit a snag in April. (Axios)

Economy | Treasury quadruples borrowing estimates to pay for stimulus. (BBG)

Trade | Truckers expect the U.S. transport capacity crunch to persist. (WSJ)

Banking | Cash-rich U.S. banks moving to reduce corporate deposits. (FT)

Commodities | Broad commodities price boom amplifies ‘supercycle’ talk. (FT)

Economy | Yellen to appoint Senior Fed official to run top bank regulator. (WSJ)

What People Are Saying

Innovation And Emerging Trends

Media | Why Verizon sold AOL and Yahoo for 1% of their peak valuation. (Axios)

FinTech | Mastercard adds 6 startups to Start Path accelerator program. (CT)

FinTech | Canada-based Wealthsimple raises $610M at a $4B valuation. (TC)

FinTech | Founder at Miami-based accelerator talks exits, #MiamiTech. (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, 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 May 3, 2021

Market Commentary

Index futures in balance.

  • Global markets quiet on holiday.
  • Ahead: Fed speak, employment.
  • Potential for directional resolve.

What Happened: U.S. stock index futures auctioned higher overnight. The S&P 500, Russell 2000, and Dow Jones Industrial Average are relatively strong compared to the Nasdaq 100.

Aside from earnings, key events this week include a manufacturing data release, as well as talks by Fed Chair Powell, Chicago Fed President Charles Evans, and Cleveland Fed’s Loretta Mester. The Bank of England and Bank of Australia will provide clarity on their monetary policies. Employment data will come Friday. 

Graphic updated 7:20 AM EST.

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

Balance-Break + Gap Scenarios: Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area. This can come in the form of sideways trade or range expansion.

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, during Friday’s regular trade, the best case outcome occurred, evidenced by sideways trade above $4,168.00, which is significant because it marked a prior session’s regular-trade low (RTH Low).

This attempt to move from balance comes after weeks of mechanical trade in the range between $4,186.75 and $4,110.50. It is likely that, given last week’s heavy economic and earnings calendar, participants have more information to initiate a directional move. 

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above $4,197.25 low-volume area (LVNode) targets the $4,205.00 VPOC. Initiative trade beyond the VPOC could reach as high as the $4,210.75 regular-trade high (RTH High), and then, the Fibonacci cluster between $4,222.50-4,237.50. 

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.

In the worst case, the S&P 500 trades lower; activity below the $4,186.75 balance-area boundary targets the $4,167.25 RTH Low. Thereafter, if lower, participants should look for responses at the $4,132.00 value-area low (VAL) and the $4,110.50 minimal excess low.

Excess: A proper end to price discovery; the market travels too far while advertising prices. Responsive, other-timeframe (OTF) participants aggressively enter the market, leaving tails or gaps which denote unfair prices.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.

News And Analysis

Travel | EU pushes end to travel restrictions for vaccinated tourists. (BBG)

Markets | Ether hits $3,000 as Bitcoin’s crypto dominance declines. (BBG)

Economy | Warren Buffett sees inflation, even if Jerome Powell doesn’t. (Axios)

Markets | Demand surges for New York Fed’s reverse repo facility. (KFGO)

Markets | Abel is likely successor at Berkshire Buffett tells CNBC. (BBG)

Markets | Robinhood’s core business more than tripled in first quarter. (BBG)

Trade | Intel CEO says chip shortage will persist for couple years. (BBG)

Recovery | COVID-19 cases fall sharply in U.S., vaccinations rise. (CNBC)

Economy | Bank of Canada tapers asset purchases, while others wait. (Moody’s)

What People Are Saying

Innovation And Emerging Trends

Trading | London Metals Exchange to announce open outcry decision. (REU)

FinTech | Fintech groups form as industry scrutiny ramps on Capitol Hill. (S&P)

FinTech | Robinhood deepens ties with JPM by using bank for transfers. (CNBC)

FinTech | Digital Dollar Project to launch five U.S. central bank cryptos. (REU)

Travel | Airport security app Clear looks to score with vaccine passport. (REU)

FinTech | TradeTech INX estimates $125M raised in token, equity offer. (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.

Categories
Commentary

Daily Brief For April 30, 2021

Market Commentary

Index futures in balance.

  • Fundamentals great, risks nearing.
  • Earnings, FOMC pass. What now?
  • May see chop or responsive trade.

What Happened: U.S. stock index futures auctioned lower overnight after a string of positive fundamental developments.

Graphic updated 6:20 AM EST.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by initiative trade below the $4,186.75 ledge (also the balance-area high, or BAH). This is significant because it suggests participants did not have the conviction to explore higher prices beyond balance (a dynamic that’s caused by participants searching for more information to base their next move). 

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).

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).

As stated in yesterday’s balance-break and gap scenarios, acceptance was key in confirming the higher prices discovered during Thursday’s pre-market trade. Participants failed to find acceptance given the S&P 500’s move into the prior range. As a result, odds favor (1) sideways or (2) lower trade, as low as the balance-area low (BAL) $4,110.50 (a minimal excess low, also). 

All of these nuances — while prices are near all-time highs — are happening in the context of optimistic comments from policy leadership and blow-out earnings.

“All evidence still points to continued support from both fiscal and monetary policy against a backdrop of accelerating corporate earnings,” said Mark Haefele, UBS Global Wealth Management’s chief investment officer. “This reinforces our view that markets can advance further, with cyclical parts of the market — such as financials, energy, and value stocks — likely to benefit most from the global upswing.”

To put it simply, one could say that the equity market is priced to perfection at this stage of the recovery.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,186.75 ledge targets the $4,210.75 minimal-excess high. Initiative trade beyond $4,210.75 could reach as high as $4,228.00 and $4,263.00. In the worst case, the S&P 500 trades lower; activity below the $4,168.00 RTH low targets the $4,164.25 high-volume area (HVNode). Thereafter, if lower, participants could see a test of the opposing end of the balance, or the $4,110.50 minimal excess low.

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

Volume 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: S&P 500 Index (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Updated 9:30 PM EST.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Updated 9:30 PM EST.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for April 29. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $400.00, which corresponds with $4,200.00 in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: Noting a move lower in the % of S&P 500 companies trading above their 100-day simple moving average.

News And Analysis

Economy | U.S. recovery gains steam as spending fuels 6.4% GDP growth. (BBG)

Commodities | Surging U.S. crop prices reversing fortunes in rural Iowa. (REU)

Commodities | Cobalt price jump underscores reliance on metal for EV batteries. (FT)

Trade | Why Apple has chips for iPhones while Ford got caught short. (REU)

Markets | Fundamentals support lower volatility, tight corporate bond spreads. (Moody’s)

Economy | China’s factory activity growth slows on supply bottlenecks, demand. (REU)

Housing | Pending home sales rise less than expected, inventory remains tight. (MND)

Economy | Sawmills are selling boards faster than they can cut them. (FP)

Trade | Caterpillar flags supply-chain risks as global recovery boost earnings. (REU)

Commodities | Oil dipping after rallying on signs of rising global fuel demand. (BBG)

Economy | Joe Biden says tax hikes on rich will fund cuts for many more. (BBG)

Economy | How a bout of mild inflation could knock decarbonization plans. (FP)

Economy | The recovery accelerates amid consumer, housing, industrial gains. (S&P)

Markets | Lockdowns worsen India’s fiscal woes fueled by weak auctions. (BBG)

Recovery | COVID-19 surge in Oregon shows fight against virus not over. (BBG)

What People Are Saying

Innovation And Emerging Trends

Events | Discover tomorrow’s solutions to today’s challenges in fintech. (Finovate)

Trading | Nasdaq does a deep dive into dark, off-exchange trading. (NDAQ)

 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.

Categories
Commentary

Daily Brief For April 28, 2021

Market Commentary

Index futures balance, trade sideways.

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

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

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

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

Graphic updated at 8:20 AM EST.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

News And Analysis

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

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

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

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

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

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

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

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

What People Are Saying

Innovation And Emerging Trends

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

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

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

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

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

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For April 27, 2021

Market Commentary

Index futures auction sideways, validating higher prices.

  • 80% of companies beat expectations.
  • Ahead: FOMC, Biden Address, GDP.
  • Indices balance and correct with time.

What Happened: U.S. stock index futures auctioned sideways, overnight, while Treasury yields and commodities posted substantive gains.

This price action comes as nearly 80% of companies that reported their earnings have either met or beaten expectations. The muted response suggests much the optimism has already been priced in. Now, participants are looking for more information to base their next move. 

See here for information on how to read an earnings report.

Ahead, is data on home prices, consumer confidence, and manufacturing. On Wednesday, Federal Reserve Chair Jerome Powell will hold a conference on central bank policy. On the same day, Joe Biden will address Congress. Thursday, U.S. GDP will likely show improvement in the first quarter, 2021.

Graphic updated 8:30 AM EST.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by sideways trade just shy of the $4,186.75 balance-area high. 

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).

All this comes after a substantial advance. The S&P 500 is up nearly 13% since the start of March and it could be said that the product has been marked up, enough. Given the busy calendar, the odds favor sideways trade. The reason being: a market in balance tends to stay in balance unless some exogenous factor provides participants more information to base their next move.

Adding, Jeff Buchbinder, Equity Strategist for LPL Financial says: “[W]hile sentiment may be overly optimistic and a pickup in volatility would be totally normal, strong breadth measures suggest stocks still may have more upside. This week we tackle that same topic of peak optimism, but by looking at some valuation metrics. While valuations are elevated, they still appear reasonable when factoring in interest rates and inflation.”

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

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

In the worst case, the S&P 500 trades lower; activity below $4,173.25 regular-trade low (RTH Low) targets the $4,164.25 high-volume area (HVNode). Thereafter, if lower, participants can look for responses at the $4,163.25, $4,137.25, and $4,122.75 HVNodes.

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

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

Initiative Trade: Buying (selling) within or above (below 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.

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

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

As long as the S&P 500 remains in the $4,186.75-$4,110.50 balance area, the course of action is responsive trade.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: SHIFT search maps out the trade of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for April 26. Activity in the options market was primarily concentrated in short-dated tenors, in strikes near current prices. To put it simply, not much is going on, yet.

News And Analysis

Banking | Nomura, UBS take global banks’ Archegos hit to $10B. (BBG)

Economy | U.S. auto dealers are winners as chip shortage lifts profit. (REU)

Markets | Goldman Sachs watching total margin loans after blow-ups. (REU)

M&A | New York Community Bancorp will buy Flagstar Bancorp. (REU)

Economy | France, and Germany support U.S. 21% corporate tax plan. (BBG)

Travel | The E.U. set to let vaccinated U.S. tourists visit this summer. (NYT)

What People Are Saying

Innovation And Emerging Trends

FinTech | Citi eyes mortgage tech in push to close the wealth gap. (BBG)

Innovation | Germany to spend recovery money on green, digital goals. (REU)

FinTech | Mobile bank Current raises $220M Series D, tripling value. (TC)

FinTech | S!NG wants creators to lean on NFTs to protect their IP. (TC

About

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

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

Disclaimer

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

Categories
Commentary

Market Commentary For 3/11/2021

Notice: To view this week’s big picture outlook, click here.

What Happened: After a report on U.S. consumer prices helped calm fear around rising inflation, U.S. stock index futures auctioned higher.

What Does It Mean: On a relative basis, the Nasdaq-100 is weaker, while the S&P 500Russell 2000, and Dow Jones Industrial Average are stronger. This push-pull dynamic, in prior sessions, made it hard for participants to resolve directionally, evidenced by volatility.

Now, it appears that relative strength could be shifting back to the Nasdaq-100, evidenced by supportive market liquidity and option activity dynamics, over the last few sessions.

Important to note is the tenor of the speculative derivatives activity, dominance of put side open interest, and divergent delta in the the S&P 500 and Russell 2000.

These dynamics suggest near-term conviction. In other words, participants with a short-term outlook are dominating recent trade. This is also evidenced by the mechanical trade (e.g., flat highs during Tuesday’s session in the S&P 500, and subsequent end-of-day liquidation that was taken back during Wednesday’s trade).

More On Liquidation Breaks: The profile shape in the S&P 500 suggests participants were “too” long and had poor location.

More On Volume Delta: Buying and selling power as calculated by the difference in volume traded at the bid and offer.

More On 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.

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

During Wednesday’s trade, the best case outcome occurred, evidenced by initiative trade that retook the $3,891.00 spike base.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 trades sideways or higher, as high as the $3,934.25 ledge. Auctioning above the ledge may portend a fast move to the $3,959.25 overnight rally high (ONH).

More On Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack 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).

More On 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, participants lack the conviction to maintain higher prices, evidenced by trade below the $3,907.25 high-volume area (HVNode). Any trade below the $3,861.25 low-volume area (LVNode) would put in question this most recent 4-day recovery.

More On 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.

Levels Of Interest: $3,959.25 ONH, $3,934.25 ledge, $3,907.25 HVNode, $3,861.25 LVNode.

Categories
Commentary

Market Commentary For The Week Ahead: ‘Fast Moves’

Key Takeaways:

  • U.S. Senate passes a $1.9T relief package.
  • COVID vaccination timeline is sped up.
  • Equities are recipients of $12B in inflows.
  • Treasury yields aren’t at worrisome levels.
  • VIX term structure suggests no real panic.
  • Real GDP growth to be over 6% this year.

What Happened: U.S. stock index futures ended the week mixed.

This came after U.S. non-farm payrolls grew by 379,000, versus a consensus of ~180,000, improvement in sales and manufacturing data, as well as news that COVID-19 coronavirus vaccinations were accelerating.

Dynamics Unpacked: On a relative basis, the Nasdaq-100 is weaker, while the S&P 500, Russell 2000, and Dow Jones Industrial Average are stronger. This push-pull dynamic, in prior sessions, made it hard for participants to resolve directionally, evidenced by volatility.

On Friday, after an attempt by market participants to resolve lower, via a break of consolidation, stock indexes made a vicious rebound.

Why did stock indexes make a sudden reversal? Well, despite indexes being best positioned for sideways or lower trade, technically, near-term downside discovery reached its limit, based on market liquidity metrics and the inventory positioning of participants.

As stated in Friday’s morning commentary, according to SqueezeMetrics, the steepness of the GammaVol (GXV) curve suggested there was more risk to the upside than downside.

More On 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.
Graphic 1: SqueezeMetrics data suggested a near-term turnaround after Thursday’s violent liquidation.

Adding, also, coming into Friday’s session, market liquidity suggested (1) buying pressure was increasing and/or (2) sellers were absorbing resting liquidity (opportunistic buying or short covering into weakness), while speculative options activity was concentrated on the call-side.

In simple terms, one could argue, based on the aforementioned dynamics (e.g., speculative derivatives activity), that participants bought last week’s dip.

Graphic 2: 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 February 26, 2021. Noting activity in short- and long-dated tenors, near the $380, a strike that corresponds with $3,800.00 in the cash-settled S&P 500 Index (INDEX: SPX).

Important to note, though, is the S&P 500’s long-term trend break, prior to Friday’s dramatic reversal and higher close, as well as Friday’s divergent volume delta in ETFs that track the S&P 500, Nasdaq-100, and Russell 2000.

Graphic 3: Long-term uptrend in the cash-settled S&P 500 Index (INDEX: SPX) was broken.
More On Volume Delta: Buying and selling power as calculated by the difference in volume traded at the bid and offer.

What To Expect: Directional resolve and volatility, given news that the U.S. Senate, on Saturday, passed President Joe Biden’s $1.9 trillion COVID-19 coronavirus relief plan, as well as the (2) short-gamma (Graphic 4) environment (i.e, volatility is exacerbated due to dealer hedging requirements), as mentioned in the prior section.

Graphic 4: SpotGamma data suggests Nasdaq-100, the weakest index discussed in this commentary, is below the “Short-Gamma” juncture.

What To Do: In the coming sessions, participants will want to pay attention to the VWAP anchored from the $3,959.25 peak, the $3,720.50 minimal excess low, as well as the $3,837.75 high-volume area (HVNode).

Volume-Weighted Average Prices (VWAPs): Metrics highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

More On 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.

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.

In the best case, the S&P 500 opens and remains above the $3,837.75 volume area. Auctioning above the VWAP anchored from the $3,959.25 peak would suggest buyers, on average, are in control and winning since the February 15 rally high.

In such a case, participants can look to the $3,892.75 HVNode for favorable entry and exit, the $3,934.25 profile ledge, and $3,959.25 overnight rally-high.

More On Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack 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).

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

Any activity below the VWAP anchored from the $3,959.25 peak may leave the $3,837.75 HVNode as an area of supply — offering initiative sellers favorable entry and responsive buyers favorable exit.

In such a case, participants can look to other areas of high-volume (i.e., $3,795.75 and $3,727.75) for favorable entry and exit, as well as the repair of the $3,720.50 minimal excess low.

Graphic 5: Profile overlays on a 65-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Graphic 6: 4-hour chart of the Micro E-mini S&P 500 Futures.

Conclusions: The go/no-go level for next week’s trade is $3,837.75.

Any activity at this level suggests market participants are looking for more information to base their next move. Anything above (below) this level increases the potential for higher (lower). 

Levels Of Interest: $3,837.75 HVNode.

Cover photo by Chris Peeters from Pexels.

Categories
Commentary

Market Commentary For 1/27/2021

Notice: To view this week’s big picture outlook, click here.

What Happened: After a failure to resolve higher, ahead of the Federal Reserve’s policy decision and earning reports by mega-cap stocks, U.S. index futures sold heavy overnight.

What Does It Mean: During Tuesday’s regular trade in the S&P 500, market participants were unable to maintain prices above the $3,852.50 ledge, increasing confidence among responsive sellers.

Graphic 1: Internally, it appears that the market is running out of steam.

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

Given that the market failed to drum up initiative buying after an upside break of the $3,852.50 ledge, in addition to profile structures denoting the presence of excess (which forms after an auction has traveled too far in a particular direction and portends sustained reversal) participants can expect increased confidence among responsive sellers.

Therefore, attention moves to the $3,824.00 – $3,763.75 balance-area.

Balance-areas denote range-bound trade. The longer participants spend time transacting within a narrow range of prices, the more valuable those prices become. Should the market initiate out of balance and return, participants left out in the move will respond as the area offers favorable entry.

Re-entry into the balance-area may portend further downside participation, as low as the $3,763.75 boundary. Participants should keep in mind that the area is valuable and will be the site of responsive buying. The near-term bullish narrative remains intact, as long as participants maintain prices above the $3,763.75 boundary. Trade beneath $3,763.75 would be the most negative outcome and may portend further downside discovery, as low as the $3,727.75 high-volume node (HVNode), a favorable area to transact in the past.

The go/no-go for upside is the $3,824.00 balance-area boundary. The go/no-go for downside is $3,763.75 balance-area boundary.

Above $3,824.00 puts in play the $3,852.50 ledge. Below $3,763.75, participants ought to look to the $3,727.75 HVNode.

Levels Of Interest: $3,852.50 ledge, $3,824.00 balance-area high, $3,763.75 balance-area low, $3,727.75 HVNode.

Categories
Commentary

Market Commentary For 1/26/2021

Notice: To view this week’s big picture outlook, click here.

What Happened: After a brief liquidation during Monday’s session, U.S. index futures traded flat overnight, with the S&P 500 rotating within an 8-session balance-area.

What Does It Mean: During Monday’s regular trade in the S&P 500, market participants were unable to break through to new highs; profile structures denoted a market that wasn’t paying longs that were late to the party.

Further, the Monday morning liquidation cleared the inventory of those participants that bought too much, repairing some poor structures left in the wake of last week’s upside discovery.

Given that the $3,824.25 balance-area high (BAH) was rejected, upside conviction remains intact (graphics 1 and 2 confirm this).

As a result, attention is drawn to the $3,852.50 ledge which has attracted responsive sellers numerous times over the past 8-sessions.

Graphic 1: Order flow in the SPDR S&P 500 ETF Trust (NYSE: SPY), the largest ETF that tracks the S&P 500
Graphic 2: Speculative derivatives activity for Monday, January 25

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open inside of prior-balance and -range, suggesting higher volatility and limited directional opportunity.

As stated earlier, participants have to contend with the $3,852.50 ledge. In today’s session, (1) a lack of upside continuation increases confidence among responsive sellers to transact below the ledge or (2) the level cracks, and initiative buying surfaces. In the latter case, the best outcome would include a test of the $3,859.75 overnight all-time high (there is a low probability that overnight all-time highs end the upside discovery process) and $3,884.75 price projection, or double the width of the balance-area, the typical target on a balance-area breakout.

The go/no-go for upside is the $3,852.50 ledge. The go/no-go for downside is $3.821.50 overnight low.

Levels Of Interest: $3,852.50 ledge, $3.821.50 overnight low.