Tag: Market Internals

Categories
Commentary

Daily Brief For July 23, 2021

Market Commentary

Equity index futures trade higher as breadth weakens. Commodities are mixed and yields are higher, also.

  • Earnings balance COVID danger.
  • Ahead is PMI and some earnings.
  • Participants look to all-time highs.

What Happened: U.S. stock index futures auctioned higher overnight alongside positive developments with respect to earnings offsetting the negatives of a COVID-19 coronavirus resurgence. 

“One of the most under-appreciated things about the equity markets right now is just how much these earnings have risen, and how much analysts have had to revise their earnings estimates up,” said Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute.

Ahead is PMI for services and manufacturing as well as few earnings releases. 

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

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

Gap Scenario: 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 the prior day’s regular trade, the best case outcome occurred, evidenced by trade that later moved participants into a balance area, above the $4,357.75 low volume area (LVNode). This is significant because the initial breakdown, from that area, signaled a clear transition from two-time frame trade, or balance, to one-time frame trade, or trend.

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

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

Coming into Thursday’s session, markets were positioned for higher. Increased acceptance at higher prices moved the micro-composite Point of Control (MCPOC) up to $4,341.75, breadth was fantastic, and dynamics with respect to market liquidity, and the derivatives market, were confirmations. 

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.

Coming into Friday’s session, conditions are less favorable.

Yesterday, the so-called other timeframes (OTFs) – those larger participants that have the wherewithal to move price – were not far apart in their views. The S&P 500 was rangebound between the $4,341.75 MCPOC and $4,357.75 LVNode – key levels highlighted in the morning commentary – as participants worked off the near-vertical price from day’s prior, positioning themselves for new information. 

In the face of that balancing activity, the market was not supported, internally; among other factors, breadth, measured by the Advance/Decline indicator, was divergent. 

Graphic: Equity index leaders rose in price as internal divergences – like the ratio of advancers to decliners – grew. Noting a bigger divergence in internals tracking Nasdaq issues. 

So, with that, despite the path of least resistance being higher, participants are to limit their expectations for future trade. Certain mechanics are likely to quell upside volatility, leading to a stall or slower advance. 

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,317.25 high volume area (HVNode) puts in play the $4,384.50 minimal excess, regular trade high (RTH High). Initiative trade beyond the RTH High could reach as high as the Fibonacci-derived price targets at $4,393.75 and $4,413.75.

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 the $4,371.25 HVNode puts in play the low end of the balance or the $4,357.75 LVNode. Initiative trade beyond the LVNode could reach as low as the $4,341.75 MCPOC and $4,315.25 HVNode.

It is important to note also that the last two key levels correspond with key Volume Weighted Average Price (VWAP) levels, a metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Graphic updated 6:45 AM ET.

News And Analysis

Pfizer shot halts severe illness, allows infection in Israel. (BBG)

Delinquencies fall below the pre-great recession average. (MND)

Analysis: Case for stablecoins being new shadow banks. (BBG)

Study: Sharp dip in antibody levels after first Pfizer dose. (REU)

Fed seen speeding taper of MBS in early-2022 pullback. (BBG)

Digital euro poses disintermediation risks to Euro banks. (Moody’s)

Car chip shortage to abate, smartphones probably next. (REU)

U.K.’s growth slows sharply in July amid COVID’s return. (REU)

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. Additionally, Capelj is a finance and technology reporter. Some of his biggest works include interviews with leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For July 21, 2021

Market Commentary

Equity index futures sideways to higher overnight. 

  • Pandemic continues to accelerate.
  • Ahead is oil market data, earnings.
  • Indices sideways as volatility ebbs.

What Happened: U.S. stock index futures auctioned sideways to higher alongside an increased spread of COVID-19 variants, earnings, and tremendous bond market volatility.

The trade comes also as leading indicators for global economic growth show unusually strong readings, according to Merrill, “pointing to one of the strongest economic expansions of the past 70 years.” In line, strategists at JPMorgan Chase & Co (NYSE: JPM) revised higher their year-end S&P 500 price target from $4,400 to $4,600. 

Ahead, participants are looking forward to data on oil market inventory and earnings.

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

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

Balance-Break and/or 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, during the prior day’s regular trade, the best case outcome occurred, evidenced by trade above the $4,285.25 micro-composite Point of Control (MCPOC). This is significant because it denotes movement above the fairest price to do business since the June 20 swing low. Now, initiative sellers have a clear line in the sand – $4,285.25 – when it comes to making headway into areas of demand.

Further, the near-vertical price rise wasn’t without a warrant.

After breaking down, the S&P 500 came to a micro-composite LVNode and halted. Thereafter, prices rebounded. Why was this? Stock indexes were positioned for a vicious rebound as near-term downside discovery may have reached a limit, based on market liquidity metrics and the inventory positioning of participants. 

According to SqueezeMetrics, the steepness of the GammaVol (GXV) curve suggested there was more risk to the upside than the downside, at that S&P 500 juncture.

Given this metric, strong breadth, and positive delta, as well as the resolve of a Volume Weighted Average Price (VWAP) pinch, the S&P 500 is positioned for higher.

Graphic: SPDR S&P 500 ETF Trust (NYSE: SPY) market liquidity, via Bookmap. Note the supportive volume delta, a measure of buying and selling power as calculated by the difference in volume traded at the bid and offer.
Volume-Weighted Average Prices (VWAPs): A metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,334.25 spike base puts in play the $4,343.00 untested Point of Control (VPOC). Initiative trade beyond the VPOC could reach as high as the $4,357.75 low volume area (LVNode) and $4,371.00 VPOC.

In the worst case, the S&P 500 trades lower; activity below the $4,334.25 spike base puts in play the $4,314.75 HVNode. Initiative trade beyond the $4,314.75 HVNode could reach as low as the $4,299.75 HVNode and $4,285.25 micro-composite POC.

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).

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.

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.

News And Analysis

Work-in-progress U.S. infrastructure bill faces test in Senate. (REU)

Housing starts continuing to improve as permits lose ground. (MND)

Nasdaq to spin out market for pre-IPO shares in a bank deal. (WSJ)

Decentralized finance builds on three major waves of bitcoin. (Future)

Startups on a record acquisition spree buying other startups. (CBN)

U.S. and European consumer confidence and spending rise. (Moody’s)

Titan – Fidelity for Millennials – raised $58M Series B round. (CBN)

Survey showing U.S. majority supports more tech regulation. (Axios)

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. Additionally, Capelj is a finance and technology reporter. Some of his biggest works include interviews with leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.

Disclaimer

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

Subscribe
Categories
Commentary

Weekly Brief For July 18, 2021

Market Commentary

Key Takeaways: Equity index futures spike lower in their attempt to discover fair prices for two-sided trade.

  • COVID, waning stimulus cloud outlook.
  • Ahead: Housing and employment data.
  • Indices diverge; breadth, inflows lower.

What Happened: U.S. stock index futures auctioned sideways to lower.

The drop wasn’t entirely uncalled for. 

Into the seasonally-aligned price rise led by the Nasdaq 100 and S&P 500, inflows decelerated and breadth weakened. 

At the same time, a measure of inflation – via the Consumer Price Index (CPI) – rose the largest since the Global Financial Crisis. In response, the 5s30s curve resumed its flattening and the 10-year U.S. Treasury yield ended little changed.

Graphic: Inflation at its highest in almost 30 years via Bloomberg.

Simply put, it’s likely that bond market participants shrugged off the data and an acceleration in inflation will be temporary.

Still, yields could become further depressed due in part to fundamental and technical factors – issuance, short coverings, a fading reflation trade, peak growth – as well as the August 1 reinstatement of the U.S. debt limit.

“[I]f Congress idly stands by, the Treasury will eventually hit the debt limit on October 18. The consequences would be severe,” Moody’s strategists believe. Michael A. Gayed of the Lead-Lag Report adds the odds of a rating downgrade increase, as a result, also.

Moody’s concludes: “[T]apering earlier than the markets are pricing would risk causing yields to jump when some of the technical drags are easing.”

Graphic: Bank of America Corp’s (NYSE: BAC) timeline for taper via The Market Ear. 

Adding, since inflation and rates move inversely to each other, a mistimed bump in rates – alongside increased nervousness over a COVID-19 resurgence and fading fiscal stimulus – would potentially take away from the commitment to keep inflation expectations closer to the Federal Reserve’s 2%-plus target.

In all, in support of the Fed’s target, COVID-19 must not become a problem, and the Biden administration, alongside Congress, must come to terms on another fiscal package – a few trillion in size – that looks to extend the Treasury debt ceiling.

As unemployment declines and labor force participation increases, expectations of rate normalization will solidify. This is a boon for beta sectors, according to JPMorgan Chase & Co’s (NYSE: JPM) Marko Kolanovic.

Considerations: Investment bank and financial services company Morgan Stanley (NYSE: MS) believes downside risks are compounded by equity and bond positioning, low short interest, and the involvement of systemic strategies which could intensify a sell-off.

Graphic: Bank of America Corp (NYSE: BAC) chart on futures positioning via The Market Ear.

MS says CTAs are still short bonds which, according to CityWire, could continue the bond rally, pressuring stocks as investors “fear the bond market may know[] something they don’t.”

Add the passage of the July options expiration (OPEX), the window for the aforementioned dynamics (alongside a shift in preferences from saving and investing to spending, monetary tightening, seasonality, as well as a COVID-19 resurgence) to take over is opened.

After OPEX, according to SpotGamma, “the market tends to experience its largest intraday volatility which corresponds to the reduction in large options positions, and the hedging associated with them.”

Graphic: SpotGamma’s EquityHub showed 30% of the S&P 500’s gamma expiring July 16 which, as SpotGamma has said in the past, “creates volatility because, as large options positions expire[], are closed and/or rolled, dealers have large hedges they need to adjust.”

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 $4,334.25 spike base.

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 best case, the S&P 500 trades sideways or higher; activity above $4,334.25 puts in play the $4343.00 VPOC. Trade beyond that signposts may then put in play the $4,346.75 HVNode – which corresponds with two anchored Volume Weighted Average Prices (VWAPs). 

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. 

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

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.

If higher, entry into an overhead supply area, above the $4,357.75 low volume area (LVNode), portends continuation to the $4,371.00 VPOC and$4,384.50 RTH High. 

In the worst case, the S&P 500 trades lower; activity below $4,334.25 puts in play the $4,314.75 high volume area (HVNode). Initiative trade beyond $4,314.75 could reach as low as the $4,297.00 HVNode. Closeby is the $4,291.00 VPOC and $4,285.00 composite HVNode.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).

News And Analysis

When VIX hits an extreme, options traders look to volatility arbitrage. (tasty)

Identifying gamma squeezes with SpotGamma’s options modeling. (BZ)

U.S. banks see loan, revenue pressure despite consumer spending. (Fitch)

The U.S. economy continued to strengthen as mobility trended up. (S&P)

‘A free put on the market’: Ambrus CIO talking volatility dislocations. (BZ)

OPEC+ agrees oil supply boost after UAE, Saudi reach compromise. (REU)

An unexpected tightening in policy would generate market volatility. (Moody’s)

Semiconductor supply shortage, inflation, and technology regulation. (S&P)

Frenzied retail investing boom has been cooling off in recent weeks. (Fortune)

Delta Air is seeing positive growth in business travel as offices open. (S&P)

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. Additionally, Capelj is a finance and technology reporter. Some of his biggest works include interviews with leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For July 16, 2021

Market Commentary

Equity index futures higher overnight.

  • Watching: Delta variant, HK warning.
  • Light day ahead: OPEX, retail sales.
  • Indices rotating, recover lost ground.

What Happened: U.S. stock index futures auctioned sideways to higher last night ahead of the Friday monthly options expiry (OPEX). 

Key developments include a bump in the consumer price index (CPI), expectations the Biden administration will issue an advisory about the risks of doing business in Hong Kong, and the spread of COVID-19 variants.

Today, participants get data on retail sales, Fed speak, and earnings.

Graphic updated 7:00 AM ET. Sentiment Neutral if /ES open is inside of the prior day’s range. Sentiment Risk-On if /ES open is above the prior day’s range. Sentiment Risk-Off if /ES open is below the prior day’s range. See here for more on the Dark Pool Index and Gamma. A positive Dark Pool Index reading is bullish. At the same time, the higher (lower) the gamma, the less (more) volatility. SHIFT Search data used for options activity. Note that options flow is sorted by the call premium spent; if green and more (less) positive then more (less) was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by trade below the $4,357.75 low volume area (LVNode) pivot. This is significant because that pivot marked a break from a multi-session balance 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.

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).

The downside resolve was the result of initiative sellers stepping in. For weeks, equity indices – particularly the S&P 500 and Nasdaq 100 – rose with tremendous speed, leaving behind low volume (poor) structures. Thereafter, responsive sellers surfaced, evidenced by sideways trade in the day’s prior. That said, weak breadth transpired into material price action with the Nasdaq 100 losing its relative strength – a deviation from prior trade – as it and the Russell 2000 sold into trend support. The S&P 500 and Dow Jones Industrial Average traded strong, in comparison, with the Dow positioned for a potential break higher. 

All of this push-pull and divergence comes ahead of the options expiration (OPEX) cycle which starts on the third Friday of each month (July 16). Associated hedging forces make it so there’s more liquidity and less movement. After OPEX, according to SpotGamma, “the market tends to experience its largest intraday volatility which corresponds to the reduction in large options positions, and the hedging associated with them.”

Graphic: SpotGamma’s EquityHub shows 30% of the S&P 500’s gamma expiring July 16 which, as SpotGamma has said in the past, “creates volatility because, as large options positions expire[], are closed and/or rolled, dealers have large hedges they need to adjust.”

Given the expectation for so-called unpinning in coming sessions, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,357.75 LVNode pivot puts in play the $4,371.00 untested Point of Control (POC). Thereafter, if higher, participants can look for responses at the $4,384.50 regular trade high (RTH High) and $4,398.50 Fibonacci price extension.

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 worst case, the S&P 500 trades lower; activity below $4,357.75 puts in play the $4,346.75 high volume area (HVNode). Trade beyond $4,346.75 could reach as low as the $4,332.25 LVNode and $4,314.75 HVNode.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Note the developing VWAP pinch. Buy above a flat/rising VWAP pinch. Sell below a flat/declining VWAP pinch.
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). See the response to trend support in the Nasdaq 100 and Russell 2000. Also, note the Dow’s relative strength.

News And Analysis

Politics | U.S. warns investors on Hong Kong, citing China’s pressure. (BBG)

FinTech | Ethereum is the most important technology since the internet. (DDI)

Politics | Ocasio-Cortez warns progressives can ‘tank’ infrastructure bill. (BBG)

Markets | OPEC sees world oil demand reaching pre-pandemic levels. (REU)

Mobility | Biden looks into lifting Europe travel ban, a boost for airlines. (BBG)

Economy | Biden to reappoint Jerome Powell as Fed chair, some saying. (REU)

Markets | “Bad omen” for meme stocks as novice traders stop investing. (Axios)

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. Additionally, Capelj is a finance and technology reporter that’s interviewed 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.

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.

Subscribe
Categories
Commentary

Daily Brief For July 15, 2021

Market Commentary

Equity index futures sideways to lower overnight.

  • A $3.5T spending bill is gaining traction.
  • Claims, earnings, Fed speak, and more.
  • Indices diverge; breadth metrics weaken.

What Happened: U.S. stock index futures resolved lower after underlying breadth metrics failed to support further price discovery. 

Such lackluster trade comes ahead of a few key developments, most important of which include testimony by Federal Reserve chair Jerome Powell, employment data, earnings, industrial and manufacturing numbers, as well as the July 16 monthly options expiration.

Graphic updated 7:50 AM ET. See here for more on the Dark Pool Index and Gamma. Check out SHIFT search for data on the options activity.

What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open on a small gap below prior-range and -value. This suggests an increased potential for immediate directional opportunity.

Balance-Break and/or 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, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by a failure to expand range above the Volume Weighted Average Price (VWAP) anchored from the CPI release (blue in color on the below profile graphic). Instead, on very slow tempo, indexes traded lower in the face of extremely poor breadth.

Graphic: Equity index leaders rose in price as internal divergences – like the ratio of advancers to decliners – grew. Noting a bigger divergence in internals tracking Nasdaq issues. 

As stated yesterday, the push-pull and divergence comes ahead of the options expiration (OPEX) cycle which starts on the third Friday of each month (July 16). Associated hedging forces make it so there’s more liquidity and less movement. 

After OPEX, according to SpotGamma, “the market tends to experience its largest intraday volatility which corresponds to the reduction in large options positions, and the hedging associated with them.”

Knowing the above, for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,357.75 low volume area (LVNode) pivot puts in play the $4,371.00 untested Point of Control (POC). Thereafter, if higher, participants can look for responses at the $4,384.50 regular trade high (RTH High) and $4,398.50 Fibonacci price extension.

In the worst case, the S&P 500 trades lower; activity below $4,357.75 puts in play the $4,343.25 HVNode. Trade beyond $4,343.25 could reach as low as the HVNodes at $4,314.75 and $4,297.00.

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

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

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.

News And Analysis

Politics | Biden agenda gains Senate ground with big hurdles remaining. (BBG)

Economy | Restaurants signing most new retail leases as rents plummet. (CNBC)

Markets | Executive orders on competition and policy tightening impact. (Moody’s)

Economy | Jerome Powell dismisses claims of complacency on inflation. (FT)

Politics | China has accused Biden administration of hurting global trade. (Axios)

Markets | Reddit traders are upending the world of credit investing, also. (BBG)

Markets | No market breadth, no problem as Faangs lift S&P 500 higher. (BBG)

Economy | CEOs speak on elevated levels of inflation which may persist. (Axios)

Economy | China warns economic uncertainty despite moderate recovery. (FT)

What People Are Saying

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.

Subscribe
Categories
Commentary

Daily Brief For July 14, 2021

Market Commentary

U.S. equity index futures sideways overnight.

  • Dems agree to $3.5T tax, spending plan.
  • Fed Chair Powell semi-annual testimony.
  • Earnings begin with a bang and continue.
  • Equity indexes mixed; sideways to lower.

What Happened: U.S. stock index futures resolved lower after underlying breadth metrics failed to support the post-CPI recovery.

Thereafter, indices traded sideways overnight alongside news Senate Democrats on the Budget Committee agreed to a $3.5 trillion spending bill. The bill would carry President Biden’s economic agenda without Republican support. 

Ahead, participants are expecting testimony by Federal Reserve Chair Jerome Powell, earnings releases from heavily weighted index constituents, as well as the latest Fed Beige Book.

Graphic updated 6:44 AM ET.

What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open just 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 an intraday liquidation break and the subsequent acceptance below a Volume Weighted Average Price (VWAP) anchored from the CPI release (blue in color on the below profile graphic).

Liquidation Breaks: The profile shape suggests participants were “too” long and had poor location. Such dynamic offers responsive buyers (initiative sellers) favorable entry (exit).

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

Prior to the liquidation, breadth metrics were firmly negative. Despite what appeared to be a strong recovery post-CPI, internal divergences via breadth metrics became more pronounced, while profile dynamics revealed weak commitment at higher prices and an abundance of poor structures (e.g., low-volume areas). 

Graphic: Equity index leaders rose in price as internal divergences – like the ratio of advancers to decliners – grew. Noting a bigger divergence in internals tracking Nasdaq issues. 

This push-pull and divergence comes ahead of the options expiration (OPEX) cycle which starts on the third Friday of each month (July 16). Associated hedging forces make it so there’s more liquidity and less movement. In other words, the market tends to pin.

Options Expiration (OPEX): Option expiries mark an end to pinning (i.e, the theory that market makers and institutions short options move stocks to the point where the greatest dollar value of contracts will expire worthless) and the reduction dealer gamma exposure.

Gamma: 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.

Thereafter, according to SpotGamma, “[t]he week after expiration the market tends to experience its largest intraday volatility which corresponds to the reduction in large options positions, and the hedging associated with them.”

Graphic: Volatility before and after OPEX, via SpotGamma.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,365.75 low volume area (LVNode) pivot puts in play the $4,375.00 untested Point of Control (POC), first. Then, the $4,383.75 regular trade high (RTH High) and $4,398.50 Fibonacci extension come into play.

In the worst case, the S&P 500 trades lower; activity below the $4,365.75 LVNode pivot puts in play the $4,353.25 LVNode. Trade beyond that figure puts in play the high volume areas (HVNodes) at $4,343.25 and $4,314.75.

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

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

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.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: SHIFT search suggests participants were most interested in call strikes at and below the price in the cash-settled S&P 500 (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), yesterday. Noting, yesterday and over the past few weeks, there’s been increased activity in long-dated put options. 

News And Analysis

Politics | Senate Democrats Agree to $3.5T tax, spending plan. (BBG)

Markets | ‘A free put on the market’: CIO on volatility dislocation. (BZ)

Energy | OPEC reaches agreement with UAE over oil production. (WSJ)

Economy | Weekly mortgage refinances spike 20% on rate drop. (CNBC)

Mobility | EU set to call time on combustion engine in decades. (REU)

Economy | Broker says NYC’s real estate market is heating up. (CNBC)

Markets | Delta posts first profit since 2019 on aid, better revenue. (CNBC)

Economy | China’s GDP and the five things to keep an eye on. (FT)

Economy | Inflation climbs higher than expected; CPI up 5.4%. (CNBC)

Markets | Goldman, JPM pivot to M&A amid fading trade boom. (FT)

Mobility | Norwegian Cruise Line sues on vaccine passport ban. (CNBC)

Politics | China deals another blow to its cryptocurrency miners. (BBG)

Markets | Wood sells China tech stocks, warns of valuation reset. (BBG)

Economy | JPMorgan Chase CEO uber bullish on U.S. consumers. (Axios)

What People Are Saying

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.

Subscribe
Categories
Commentary

Daily Brief For July 8, 2021

Market Commentary

Equity index futures explore lower prices, widening a developing balance area.

  • Traders edgy over virus variant, Fed action.
  • Ahead is data on jobs and consumer credit.
  • Internal divergence resolved in lower prices.

What Happened: U.S. stock index futures liquidated as participants sought to price in anxieties surrounding the spread of COVID-19 variants as well as an evolution in monetary policy. 

“Worries about variant strains have hurt investor confidence that the pandemic’s effects on the global economy are truly past us,” Nicholas Colas and Jessica Rabe of DataTrek Research wrote in a note cited by Bloomberg. “Our working theory is that we’re in the middle of a modest global growth scare.”

Today, also, participants get data on initial and continued jobless claims, as well as consumer credit.

Graphic updated 6:58 AM ET.

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

Balance-Break and/or 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.

Further, the overnight liquidation comes after participants had a tough time establishing value at higher prices. Despite steady exploration in days prior, internal divergences via breadth metrics, became more pronounced, while profile dynamics revealed weak commitment at higher prices and an abundance of poor structures (e.g., low-volume areas). 

Graphic: Equity index leaders rose in price as internal divergences – like the ratio of advancers to decliners – grew. Noting a bigger divergence in internals tracking Nasdaq issues. 
Graphic: Nasdaq-100 constituents fail to participate in price rise, via The Market Ear.

Also, yesterday, Federal Reserve officials, as evidenced by meeting minutes, were not yet ready to communicate their timeline for scaling back asset purchases. 

“The committee’s standard of ‘substantial further progress’ was generally seen as not having yet been met, though participants expected progress to continue,” according to minutes from the June 15-16 Federal Open Market Committee meeting published Wednesday. “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings.”

Following closely after, rates on the 10 Year T-Note moved into trend support. Though usually perceived as a boon for stocks – especially growth names – as low rates have to potential to increase the present value of future earnings, all major equity indexes are off their highs.

Graphic: Treasury yields nearly three standard deviations below their mode-implied fair value, via The Market Ear.

Regardless of the cause – comments by the Fed, in addition to the spread of COVID-19 variants, geopolitical tensions, among other things – for today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,285.00 micro-composite high volume area (HVNode), a pivot, participants may look for responses at the $4,299.00 Point of Control (POC), first. Thereafter, if higher, the $4,317.00 POC, which corresponds with the half-point of the overnight range comes next. If above $4,317.00, lookout. The S&P 500 may auction as high as the $4,340.75 HVNode. 

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

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

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 worst case, the S&P 500 trades lower; activity below $4,285.00 puts in play the $4,263.25 low volume area (LVNode). Trade beyond that signpost may reach as low as the $4,247.75 LVNode and $4,229.00 VPOC.

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).
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), yesterday. 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 longer-dated puts on the S&P 500 and Nasdaq 100. 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 | ECB unveils higher inflation goal that tolerates an overshoot. (BBG)

Politics | President Biden to speak on Afghanistan amid swift U.S. pullout. (REU)

Economy | Fed officials are split on easing quantitative easing program. (Axios)

Economy | Rates are down, jobs are up, but mortgage apps still decline. (MND)

Economy | External liquidity strains easing in some APAC economies. (Fitch)

Energy | OPEC gets ‘pass to lift oil prices’ as hedging losses hobble U.S. (FT)

COVID | Europe’s summer in peril as France warns on Spain, Portugal. (BBG)

Economy | Quest to define post-crisis global economic order is gaining. (BBG)

COVID | Tokyo games to go without fans as Japan declares emergency. (BBG)

What People Are Saying

Innovation And Emerging Trends

Markets | Crypto scammers rip off billions on pump-and-dump schemes. (BBG)

FinTech | Powell diary shows he met Coinbase CEO, crypto investor. (BBG)

Markets | A $9 trillion binge turns central banks into the biggest whales. (BBG)

FinTech | Momentum behind blockchain in public, private markets rises. (MM)

Markets | The LSE had its first direct listing of a technology company. (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, 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.

Subscribe