Tag: NDX – Cash Nasdaq 100 Index

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Commentary

Daily Brief For July 1, 2021

Market Commentary

Index futures diverge as the bracketing process continues.

  • OPEC to decide on production today.
  • Ahead: Claims, PMI, ISM, Fed speak.
  • SPX and NDX explored higher prices. 

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

The S&P 500 and Nasdaq 100 discovered higher prices before coming back into the prior range. The Russell 2000 and Dow Jones Industrial Average hugged channel resistances suggesting a break may be imminent.

Fundamentally speaking, the U.S. added more jobs than expected last month. That’s good news ahead of Thursday releases on unemployment claims, June manufacturing PMI, ISM manufacturing, Fed speak, used car sales numbers, OECD corporate tax talk, and some miscellaneous earnings.

Graphic updated 7:50 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by sideways to higher trade, above the micro-composite Point of Control (POC) at $4,273.25.

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

Further, after strong buying by longer time frame participants, short-term traders took over; moves became mechanical, halting at key, visual references. This comes alongside narrowing breadth, tapering volumes ahead of a holiday weekend, as well as fundamental concerns such as the resurgence of COVID-19.

Still, according to some, there is no cause for concern; “The delta variant should not have significant repercussions for the pandemic situation in developed markets (e.g. Europe and North America, which have [made] strong progress in vaccinations) due to the level of population immunity,” said strategists led by chief global markets JPMorgan Chase strategist Marko Kolanovic.

Given that broad outlook, 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 POC puts in play the $4,294.75 level. Initiative trade beyond $4,294.75 could reach as high as the minimal excess $4,305.75 overnight high (ONH). 

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.

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

In the worst case, the S&P 500 trades lower; activity below the $4,285.00 POC puts in play the HVNodes at $4,273.25, $4,256.75, and $4,239.75. 

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 committing the most capital to call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside. Also, there was a meaningful bid in September puts on the S&P 500. This dynamic suggests participants, despite their commitment to higher prices, are hedging against near-term risks, like the Jackson Hole Economic Symposium.

News And Analysis

Markets | Tesla Q2 deliveries could clear 200K, set record. (BBG)

Markets | Congress has voted to overturn True Lender rule. (Moody’s)

Markets | Credit conditions ahead – things are looking good. (S&P)

Economy | Pandemic exacerbates affordable housing stress. (Fitch)

Markets | Ford will curb output at more plants on chip issue. (WSJ)

Markets | EV car sales up as Europe’s climate targets bite. (REU)

Markets | What could higher taxes mean for U.S. equities? (BLK)

Economy | Jobs gain is higher after disappointing months. (BBG)

Markets | Robinhood wants you to buy into its IPO in-app. (WSJ)

Markets | The delta variant poses no risk to stock markets. (MW)

Energy | Saudis, Russia have deal for OPEC+ output hikes. (BBG)

Markets | The spotlight is turning to M&A for fintech SPACs. (S&P)

What People Are Saying

Innovation And Emerging Trends

FinTech | Robinhood to pay $70M in large FINRA penalty. (CNBC)

Energy | Hydropower market report – analysis and forecast. (IEA)

FinTech | Senators mull Fed crypto as China races ahead. (S&P)

FinTech | A vision for decentralized finance built on bitcoin. (BBG)

FinTech | SoftBank gave $200M to Latam crypto exchange. (REU)

Travel | Air taxis coming but not in the way you are thinking. (WSJ)

FinTech | Bank users cement relations with digital channels. (S&P)

About

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

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

Disclaimer

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

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Commentary

Daily Brief For June 29, 2021

Market Commentary

Equity index futures diverge, trade sideways.

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

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

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

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

Graphic updated 7:20 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,257.00 Point of Control (POC), up to a new overnight high (ONH) at $4,283.00.

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

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

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

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,271.00 POC puts in play the $4,283.00 ONH. Initiative trade beyond the ONH could reach as high as the $4,294.75 Fibonacci-derived price target. 

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

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

If participants were to auction and find acceptance into areas of prior low volume, then future discovery ought to be volatile and quick as participants look to areas of high volume for favorable entry or exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Notice (1) increased churn at higher prices, (2) minimal excess on composite profile, (3) poor expansion of range, as well as (4) poor, and rather unsupportive, low volume structures beneath current price. 
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). 
Graphic: SHIFT search suggests participants were committing the most capital to call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside. Also, there was a meaningful bid in September puts on the S&P 500. This dynamic suggests participants, despite their commitment to higher prices, are hedging against near-term risks, like the Jackson Hole Economic Symposium.

News And Analysis

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

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

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

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

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

What People Are Saying

Innovation And Emerging Trends

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

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

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

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

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

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

About

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

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

Disclaimer

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

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Categories
Commentary

Weekly Brief For June 27, 2021

Market Commentary

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If participants were to auction and find acceptance into areas of prior low volume, then future discovery ought to be volatile and quick as participants look to areas of high volume for favorable entry or exit.
Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: SHIFT search suggests participants were committing the most capital to call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside.

News And Analysis

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

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

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

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

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

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

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

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

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

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

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

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

What People Are Saying

https://twitter.com/jfahmy/status/1408828091208667137?s=20

Innovation And Emerging Trends

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

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

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

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

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

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

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

About

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

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

Disclaimer

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

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Categories
Commentary

Daily Brief For June 25, 2021

Market Commentary

Equity index futures balance, struggle in discovering higher prices.

  • Bipartisan agreement on infrastructure.
  • Ahead is income, spending, sentiment.
  • SPX struggles. NDX weak at key level.

What Happened: U.S. stock index futures auctioned sideways to higher alongside some positive economic and political developments.

President Biden announced an agreement on infrastructure which still faces opposition in Congress. Additionally, Federal Reserve bank stress tests went well, a boon for financials. 

Today, participants will receive data on U.S. personal income and spending, Core PCE, as well as University of Michigan sentiment. Also, please be aware that Fed’s Mester, Rosengren, and Williams will speak later today.

Graphic updated 7:30 AM ET.

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 best case outcome occurred, evidenced by sideways trade above the $4,251.25 high volume area (HVNode), up to the prior overnight high (ONH) at $4,258.00.

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

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

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

Further, earlier in the week, participants saw strong initiative activity to the upside. Later, the S&P 500 took out its all-time-high (ATH) at $4,258.00, and the Nasdaq 100 found responsive sellers at a zone of overlapping Fibonacci-derived price targets. 

That said, this price action comes alongside narrow breadth; according to Bloomberg, while the broader market is near ATHs, the “[l]owest % of stocks above 50-dma since 1999, when S&P hits record.”

With those dynamics in mind, in conjunction with potentially unsupportive market liquidity metrics and trade in the options market, participants can expect more of the same: pinning, or sideways chop.

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

In the best case, the S&P 500 trades sideways or higher; activity above $4,257.25 – yesterday’s fairest price, or Point Of Control (POC) – puts in play the $4,264.25 ONH. Initiative trade beyond the ONH could reach as high as the $4,277.00 and $4,294.75 Fibonacci-derived price targets. 

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

In the worst case, the S&P 500 trades lower; activity below $4,257.25 puts in play the $4,239.75 HVNode. Thereafter, if lower, participants ought to look for a response near the untested POC at $4,229.00. Below that level, caution. Odds could favor a move as low as the HVNode at $4,213.00.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Updated 7:20 AM ET.
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). Nasdaq’s relative strength weakens. Updated 7:30 AM ET.
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. Noting, similar to the two days prior, there was increased interest in farther-dated put strikes at and above current prices. This may denote opportunistic hedging or speculation on the downside.

News And Analysis

Economy | Biden infrastructure win ramps fight on economic agenda. (BBG)

Markets | Major European banks’ 2H21 earnings: structural challenges. (Fitch)

Markets | U.S. banks gear up for buyback bonanza after passing tests. (FT)

Travel | The U.K. expands ‘Green’ list as German urges more caution. (BBG)

Politics | Senior NATO officer warns of China’s ‘shocking’ military moves. (FT)

Markets | Visa to acquire open banking platform Tink for more than $2B. (TC)

Markets | Virgin Galactic cleared by FAA to fly customers into space. (BBG)

Markets | SCOTUS has decided not to light the housing market on fire. (Vox)

Markets | U.S. ban to have only limited impact on China’s solar industry. (BBG)

Trade | More container ships score ‘astronomical’ $100,000/day rates. (FW)

Markets | SpotGamma: Finding your next gamma squeeze candidate. (SG)

What People Are Saying

Innovation And Emerging Trends

FinTech | China crushed Jack Ma, and his fintech rivals are up next. (BBG)

Markets | Citi: Global investment is becoming less reliant on China. (BBG)

Politics | Polls unpack America’s continued move toward socialism. (Axios)

Economy | Hyun Song Shin on CBDCs and future of central banking. (BBG)

Mobility | Apple’s car obsession is all about taking eyes off the road. (BBG)

About

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

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

Disclaimer

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

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Categories
Commentary

Daily Brief For June 1, 2021

Market Commentary

Index futures in price discovery.

  • Optimism around a recovery mounting.
  • Ahead: Data on manufacturing, OPEC.
  • Stock indexes traded higher overnight.

What Happened: U.S. stock index futures auctioned higher overnight ahead of data on U.S. manufacturing.

Graphic updated at 6:30 AM EST

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, on a gap outside of balance, suggesting a 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 week’s regular trade, the best case outcome occurred, evidenced by responsive trade after a breakout above the $4,177.25 high volume area (HVNode). This is significant because that HVNode marked a pivot (i.e., above = bullish, below = bearish) on the composite profile.

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

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

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

Further, this bullish price action is happening in the face of supply chain uncertainties and rising inflation, fiscal and monetary tightening, COVID-19 concerns, political risks, and the like. 

However, research by JPMorgan Chase & Co (NYSE: JPM), as well as Goldman Sachs Group Inc (NYSE: GS), suggests equities are still in play. This thinking would help explain the increased interest in S&P 500 and Nasdaq 100 call options.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above last Friday’s $4,217.75 overnight high (ONH) puts in play the $4,224.75 HVNode and $4,227.00 POC. Initiative trade beyond the two aforementioned signposts could reach as high as first the $4,238.00 overnight all-time high (ONH) and then, the $4,294.75 Fibonacci-derived price extension, a typical recovery target.

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

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

In the worst case, the S&P 500 trades lower; activity below the $4,217.75 ONH puts in play the $4,209.00 point of control (POC). Then, if lower, comes the $4,177.25 and $4,153.25 HVNode. On a cross of the $4,153.25 HVNode, the $4,122.25 HVNode and $4,071.00 POC come into play, also.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: SHIFT search suggests participants were becoming more interested in call strikes at and above current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), last week.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week prior. Activity in the options market was primarily concentrated in short-dated tenors, in strikes at and above $425.

News And Analysis

Markets | Meme stock AMC continues rally, jumping on a share sale. (CNBC)

Markets | Cyberattack hits the world’s largest meat processor units. (CNBC)

Politics | Buttigieg: mask mandates on planes are a matter of respect. (Hill)

Economy | Mortgage rates dip beneath 3% again, offering new savings. (Y!)

Economy | Inflation in the euro area climbed to 2% in the month of May. (BBG)

Energy | With oil majors under attack, OPEC’s hand has strengthened. (BBG)

Markets | Bitcoin is unlikely to escape regulation as authorities respond. (BBG)

Markets | Tesla’s vehicle price increases due to supply chain pressure. (REU)

What People Are Saying

Innovation And Emerging Trends

Markets | The 60/40 strategy needs a modern makeover to win skeptics. (BBG)

FinTech | Nasdaq: upstarts are forcing legacy banks to evolve and adapt. (NDAQ)

FinTech | Coinbase Institutional planning the launch of a prime brokerage. (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
Categories
Commentary

Weekly Brief For May 31, 2021

Market Commentary

Key Takeaways: Index futures in balance.

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

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

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

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

Gamma is the sensitivity of an option to changes in the underlying price. Dealers that take the other side of options trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That said, participants can trade from the following frameworks.

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

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

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

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

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

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

News And Analysis

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

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

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

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

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

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

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

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

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

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

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

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

What People Are Saying

Innovation And Emerging Trends

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

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

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

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

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

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

About

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

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

Disclaimer

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

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Commentary

Daily Brief For May 24, 2021

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

Market Commentary

Index futures in balance.

  • The U.S. may be facing deflation.
  • Ahead is CFNAI data, Fed speak.
  • Stock indexes sideways to higher.

What Happened: U.S. stock index futures auctioned higher overnight alongside renewed political tensions, cryptocurrency volatility, as well as a crackdown by China on commodity speculation.

Graphic updated 7:50 AM EST.

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

Value-Area Placement: Perception of value unchanged if value overlapping (i.e., inside day). Perception of value has changed if value not overlapping (i.e., outside day). Delay trade in the former case.

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by the responsive selling that surfaced at and above the $4,177.25 high volume area (HVNode). This is not all too significant given the large monthly options expiration. Still, according to SpotGamma, “[w]hile roughly 1/3 of total QQQ gamma rolled off on Friday, … [the] QQQ remains under the control of put options,” a source of potential volatility in the Nasdaq 100.

Responsive Selling: Selling in response to prices above area of recent price acceptance.

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.

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

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

Gamma: 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.

As stated in Sunday’s weekly note, equities are in a seasonally weak period. At the same time, inflation and uninspiring economic data are major worries investors are attempting to price in. That said, however, during the May 19 reversal, in the S&P 500 and Nasdaq 100, participants increased exposure to the upside with relatively cheap, longer-dated calls.

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

In the best case, the S&P 500 trades sideways or higher; activity above $4,177.25 puts in play the $4,227.00 point of control (POC). Initiative trade beyond the POC could reach as high as the $4,238.00 overnight all-time high. 

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.

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

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

In the worst case, the S&P 500 trades lower; activity below $4,177.25 puts in play the $4,122.25 HVNode. Thereafter, if lower, key references include the $4,071.00 POC and $4,050.75 low volume area (LVNode). Long-biased traders are cautioned on trade below the LVNode. 

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Nasdaq is regaining relative strength. A rotation would be bullish, or supportive of a new leg higher (if one were to happen).
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for last week. Though activity in the options market was primarily concentrated in short-dated tenors, increased trade in farther-dated call-side strikes is observed as a commitment to higher prices.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), last week. To note, however, participants began paying up for longer-dated upside exposure (evidenced by call activity).

News And Analysis

Economy | Cathie Wood: U.S. “setting up for a massive period deflation.” (BBG)

Economy | European labor market’s capacity to absorb shocks varies. (Moody’s)

Markets | How a global minimum corporate tax could impact markets. (WSJ)

Markets | Goldman sees oil hitting $80/bbl despite likely supply return. (REU)

Security | Three disasters show gaps in the $1.7T infrastructure plan. (BBG)

Markets | Mainstream markets shrug volatile $1T crypto flash crash. (BBG)

Trade | Sea change: global freight sails out of the digital dark ages. (REU)

Politics | EU weighs sanctions over so-called ‘hijacking’ of Ryanair jet. (BBG)

What People Are Saying

https://twitter.com/AnalystDC/status/1396693050429214732?s=20

Innovation And Emerging Trends

FinTech | HSBC CEO says bitcoin, cryptocurrencies are not for them. (REU)

FinTech | Robinhood to allow users to buy into IPOs ahead of debut. (REU)

FinTech | VCs are predicting new areas of consumer fintech disruption. (BI)

Environment | Unpacking the problems with reinforced concrete. (Convo)

Markets | First warning sign in global commodity boom flashes in China. (BBG)

About

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

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

Disclaimer

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

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Commentary

Weekly Brief For May 23, 2021

Editor’s Note: Happy Sunday, everyone!

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

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

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

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

Market Commentary

Key Takeaways: Index futures in balance.

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

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

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

Adding, amid this rotation, quite a bit of poor structure was cleaned up (i.e., low volume areas), but still, judging by a lack of excess at certain points on the composite volume profile, odds point to limited conviction and commitment.

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

Holistically, equities are in a seasonally weak period. At the same time, inflation and uninspiring economic data are major worries investors are attempting to price in.

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

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

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

Higher rates have the potential to reduce the present value of future earnings, making stocks, especially those that are high growth, less attractive. To note, however, rates remain range-bound; rates on the 10 Year T-Note sit below their March high and are likely to continue higher, which the market may absorb.

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

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

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

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

Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), last week. To note, however, participants began paying up for longer-dated upside exposure (evidenced by call activity).

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

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

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

In the best case, the index trades sideways or higher; activity above the $4,177.25 HVNode puts in play the $4,227.00 point of control (POC). Initiative trade beyond the POC could reach as high as first the $4,238.00 overnight all-time high and then, the $4,294.75 Fibonacci-derived price extension, a typical recovery target.

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

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

In the worst case, the index trades lower; activity below the $4,122.25 HVNode puts in play the $4,071.00 POC. Thereafter, if lower, on a cross through the $4,050.75 low volume area (LVNode), long-biased traders should beware of a rapid liquidation, as low as first the $4,015.00 and $4,001.00 POCs. In such a liquidation, odds favor a test of ~$3,970.00 50.00% retracement, as well as the $3,918.00 61.80% retracement and HVNode.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Weekly candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Note Russell’s “toppy” rotation, and similar pullbacks to trend in the S&P 500 and Nasdaq. One last push, higher?
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for last week. Though activity in the options market was primarily concentrated in short-dated tenors, increased trade in farther-dated call-side strikes is observed as a commitment to higher prices.

News And Analysis

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

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

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

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

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

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

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

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

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

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

What People Are Saying

Innovation And Emerging Trends

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

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

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

Real Estate | Manhattan’s apartment vacancy rate stubbornly high. (WSJ)

About

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

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

Disclaimer

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

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Results

Case Study: Trading A Balance-Breakout Failure In The Nasdaq 100

What Happened: On April 29, 2021, market participants attempted to move the Nasdaq 100 stock index from balance, an area of recent price acceptance, above a developing ledge, or flattened area on the composite volume profile.

Further, participants failed to find acceptance beyond the balance area, given the Nasdaq 100’s move back into the prior range. As a result, odds favored (1) sideways or (2) lower trade, as low as the balance area low (BAL) near $13,700.00.

Adding, a weak reaction by heavily-weighted index constituents to blowout earnings, as well as poor structure left behind prior price discovery, among other factors, such as the will to raise the Capital Gains Tax, suggested an increased potential to trade below the $13,700.00 BAL, into prior poor structures, or low volume areas (LVNodes), that ought to offer little-to-no support.

In response, the following sequence analysis unpacks how Physik Invest traded options tied to both the cash-settled Nasdaq 100 (INDEX: NDX) and Nasdaq 100 (CME: /NQ) future, leading up to the May 12, 2021 swing low. 

Note: Click here to view all transactions.

Sequence 1: On April 29, 2021, Physik Invest applied the balance-break and gap scenarios, monitoring for acceptance (i.e., more than 1-hour of trade) outside the balance area. 

To preface, gaps ought to fill quickly. 

Should they not, that’s a signal of weakness; 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.

After a confirmed balance-breakout failure, Physik Invest bought the following structures for a $203.00 debit. At this point, if all legs were to remain out of the money (i.e., expire worthless) by May 21, 2021, the maximum loss would have been $203.00, approximately 1/5 of a standard risk unit, or the debit risked in a typical position.

  • 13500+1/13300-2/13100+1 NDX long put ratio spread
  • 14100+3/14110-6/14140+3 NDX short call ratio spread
  • 14400-1 /NQ short call

By 5/10/2021, the aforementioned position was closed for a $1,855.00 credit, an 813.80% return on the initial debit outlay.

The above put-side structure was initiated against the $13,300 high volume area, also a prior balance area boundary. The reason being, 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.

Summary: After a failed balance-breakout setup presented itself, Physik Invest financed long put-side structures targeting a test of $13,300, with short-call exposure, risking ⅕ of a standard risk unit in debit, over a timeframe of one month.

In total, the sequence of trades net a $1,621.71 profit after commissions and fees.

The above strategies were employed in accordance with Physik Invest’s core edge: the trade of ratioed, multi-leg strategies that combine short and long positions to reduce risk and increase returns.

Yes, in hindsight, one could have opted for static short exposure (e.g., selling stock to open a position). However, the risks tied to such strategies are immense in a regime characterized by increased volatility and uncertainty.

By leveraging the dynamics of time and volatility, through complex spreads, unwanted directional risks were reduced.

Reflection: Hindsight is 20/20.

Though the entry was perfectly timed, the exit was not; 1-day prior to expiry, the 13500/13300/13100 ratio spread – which was removed for a $21.11 credit – priced at nearly $90.00. 

The correct move would have been to initiate the position with up to four 13500/13300/13100 ratio spreads. Thereafter, as prices moved lower, the position would have been pared down enough to at least cover the cost of any remaining spreads.

Those remaining spreads would have been kept on as so-called “lottery tickets.”

Categories
Commentary

Daily Brief For May 21, 2021

Market Commentary

Index futures in balance.

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

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

Graphic updated 7:25 AM EST.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade beyond the S&P 500’s $4,134.00 spike base, which is significant because it marked a so-called pivot on the composite profile (i.e., above = bullish, below = neutral-to-bearish).

Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).

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

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

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

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

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

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,153.25 high volume area (HVNode) targets the $4,177.25 HVNode. Initiative trade beyond the $4,177.25 HVNode could reach as high as the $4,227.00 POC. 

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

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

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

POCs: POCs (like HVNodes described above) are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Relative strength is shifting back to the Nasdaq.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 20. Activity in the options market was primarily concentrated in short-dated tenors, in call strikes at and above current prices.
Graphic: SHIFT search suggests participants were most interested in call and put strikes across available strikes in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), May 20.

News And Analysis

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

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

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

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

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

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

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

What People Are Saying

Innovation And Emerging Trends

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

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

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

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

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

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

About

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

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

Disclaimer

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

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