Categories
Commentary

Daily Brief For September 3, 2021

Market Commentary

Equity indexes were sideways to higher with most commodities, yields, and the dollar. 

  • Ahead: NFP, unemployment, and more.
  • Participants await context on Fed taper.
  • Indexes positioned for directional move.
  • Market is closed Monday, September 6. 

What Happened: U.S. stock index futures auctioned higher overnight ahead of Friday’s jobs report which may provide market participants context with respect to the Federal Reserve’s intent to de-stimulate.

Ahead is data on nonfarm payrolls, unemployment rate, and average hourly earnings (8:30 AM ET), as well as Markit services PMI (9:45 AM ET) and ISM services index (10:00 AM ET).

Graphic updated 6:40 AM ET. Sentiment Risk-On if expected /ES open is above the prior day’s range. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) calculations are based on where the prior day’s reading falls with respect to the MAX and MIN of all occurrences available. A higher DIX is bullish. At the same time, the lower the GEX, the more (expected) volatility. SHIFT data used for S&P 500 (INDEX: SPX) options activity approximation. Note that options flow is sorted by the call premium spent; if more positive then more was spent on call options. Breadth reflects a reading of the prior day’s NYSE Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index (INDEX: VIX) from 0-100.

What To Expect: As of 6:40 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.

Adding, during the prior day’s regular trade, on positive intraday breadth and divergent market liquidity metrics, the best case outcome occurred, evidenced by trade sideways above the $4,526.25 level, a prominent high volume area (HVNode).

Graphic: Divergent delta (i.e., non-committed selling as measured by volume delta or buying and selling power as calculated by the difference in volume traded at the bid and offer) in SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index, via Bookmap. The readings are supportive of responsive trade or balance (i.e., rotational trade that suggests current prices offer favorable entry and exit).

This is significant because of acceptance, or a willingness to transact at higher prices. We’re carrying forward the presence of poor structure left behind prior trade.

Gap Scenarios Likely In Play: 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 aforementioned trade is happening in the context of Friday’s jobs report. This report may have strong implications on the equity market; to elaborate, the data release will provide market participants color with respect to the Federal Reserve’s intent to wind down stimulus.

Forecasted is the addition of 725,000 jobs in August, according to Bloomberg, a moderate pace in comparison to months prior. 

A strong report would suggest a success, on the part of businesses, to hire after months of crunched labor supply. On the other hand, “The softening in employment activity would be consistent with other economic data that have weakened since the surge in Covid case counts due to the delta variant,” Bank of America Corporation (NYSE: BAC) economists said.

Bloomberg’s Katie Greifeld adds: “[R]ates are more likely to push higher on the heels of an unexpectedly strong jobs print than they are to fall in the wake of a weak one. With that dynamic in mind, bet against bonds.”

Graphic: Wells Fargo & Co (NYSE: WFC) data plotted by Bloomberg. 

To note, a softer report may pause any talk of taper to asset purchases. A reduction in the Federal Reserve’s balance sheet – a removal of liquidity – could prompt a sort of risk-off scenario in which participants try to get ahead of whatever cascading reactions may come with the taper.

In other words, as Kai Volatility’s Cem Karsan explained to me: “It’s not a coincidence that the mid-February to mid-March 2020 downturn literally started the day after February expiration and ended the day of March quarterly expiration. These derivatives are incredibly embedded in how the tail reacts and there’s not enough liquidity, given the leverage, if the Fed were to taper.”

Moreover, for today, given an increased potential for higher volatility and initiative trade, participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,526.25 high volume area (HVNode) puts in play the $4,545.75 overnight high (ONH). Initiative trade beyond the ONH puts in play the $4,556.25 and $4,592.25 Fibonacci extensions. 

In the worst case, the S&P 500 trades lower; activity below the $4,526.25 HVNode puts in play the $4,510.00 level, a regular trade high (RTH High), and gap. Initiative trade beyond the RTH High and gap puts in play the $4,481.75 HVNode and $4,454.25 LVNode.

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

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

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

Initiative Buying (Selling): Buying (selling) within or above (below) the previous day’s value area.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:30 AM ET.

News And Analysis

Moody’s Weekly Market Outlook on Ida, gas, and inflation expectations. 

Short bets rise against consumer discretionary stocks as stimulus fades.

Traders set to test Powell’s push to delink hikes from bond-buying taper.

Three doses could become a standard COVID regimen, Dr. Fauci says.

The Western U.S. drought is forecasted to continue through fall at least.

U.S. structured finance issuance totaled $57B in August, rising 65% YoY.

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.

Categories
Commentary

Daily Brief For July 2, 2021

Market Commentary

Index futures diverge in their attempt to discover higher prices.

  • Conflicting narratives. Only price pays.
  • Ahead: NFP, trade balance, and more.
  • Indices trying to establish value higher.

What Happened: U.S. stock index futures auctioned sideways to higher ahead of the holiday weekend. 

The Nasdaq firmed, relative to its peers, after brief intraday weakness, yesterday. The S&P 500 discovered even higher prices, while the Dow Jones Industrial Average came into technical resistance and held. Though the Russell 2000 was lower, this morning, it has been building energy for a break.

Before the open, participants will have data on June non-farm payrolls. Later releases include the May U.S. trade balance, in addition to factory and durable good orders.

Graphic updated 8:05 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,285.00 Point of Control (POC). Overnight, participants continued the discovery process, establishing a new overnight all-time high (ONH) at $4,318.25 (which was still intact at the time of this writing 7:50 AM ET). 

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.

Further, this relentless uptrend comes ahead of data key in gauging the economic recovery; this morning’s payroll release will be a true test of optimism, providing participants more information to either support (or not support) this most recent directional move on narrowing breadth and tapering volumes ahead of the holiday weekend.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,311.50 high volume area (HVNode) puts in play the $4,318.25 ONH. Thereafter, if higher, participants may look to the Fibonacci price extensions at $4,236.25 and $4,337.75 for potential exhaustion. 

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

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

In the worst case, the S&P 500 trades lower; activity below the $4,311.50 HVNode puts in play the $4,299.00 and $4,285.00 POCs. Thereafter, if lower, the $4,256.75 HVNode may come into play as a level where responsive buyers surface.

To note, it’s Friday, a good day to limit expectations, overall.

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 | U.S. payrolls jump 850K in June, versus EST: 720K. (BBG)

Economy | ECB’s Lagarde warns that recovery remains fragile. (REU)

Markets | Robinhood seizes the meme-stock moment with IPO. (BBG)

Economy | Treasury yields signal investors’ waning exuberance. (WSJ)

Markets | 15% minimum corporate tax will have a limited impact. (Axios)

COVID | J&J shot shows strong response against Delta variant. (REU)

What People Are Saying

Innovation And Emerging Trends

Mobility | Rumors of the demise of cars have been exaggerated. (BBG)

FinTech | Fintechs asked CFPB for guidance on AI, ML, LendTech. (BD)

Markets | The crypto basis trade status after May retail liquidations. (BBG)

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For June 30, 2021

Market Commentary

Index futures rotate as participants begin the bracketing process.

  • More delta variant fears. End to a slow quarter.
  • Ahead is employment, home sales, Fed speak.
  • Participants positioning for upcoming catalysts.

What Happened: U.S. stock index futures auctioned sideways to lower alongside fears surrounding COVID-19 variants. 

To note, though, Moderna Inc (NASDAQ: MRNA) announced that its shot produced antibodies against the concerning delta variant. In other areas, cryptocurrencies took a hit ahead of the House Committee on Financial Services hearing on crypto.

Adding, tomorrow participants will get clarity on OPEC’s decision on crude supply.

Before the market opens, the latest ADP Employment report will be out. Thereafter, Chicago PMI, pending home sales data, some Fed speak, and earnings are on deck. 

Graphic updated 7:40 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by sideways trade above the $4,271.00 Point of Control (POC), up to a new – likely secure – regular-trade high (RTH High) at $4,291.00.

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.

Coming into today’s session, the Nasdaq 100 remains relatively strong. Despite Tuesday’s corrective activity – as evidenced by a higher high and low in the S&P 500 – offering participants favorable entry and exit within the trend, signs of exhaustion are apparent. After strong buying by longer time frame participants, short-term traders took over; moves are mechanical, halting at key, visual references. 

It’s likely that last night’s break is the start of bracketing (i.e., the trend ceases and the auction becomes volatile as participants, with similar views of value, look to position themselves for the next catalyst). At the same time, as stated in prior commentaries, markets are just days from breaking out of weak seasonality; July 4 marks the start of the best 2-week period going back to 1950. 

Graphic: Historical data suggests the market is entering into a seasonally strong period, via The Market Ear

Overall, the outlook is rather cloudy. Given seasonality metrics and a strong uptrend, participants should keep an open mind when assessing the implications of narrowing breadth and tapering volumes. The uptrend will end after (1) buyers are exhausted or (2) responsive sellers deem the price too far from perceived value. 

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 micro-composite POC at $4,273.25 puts in play the $4,285.25 high volume area (HVNode). Initiative trade beyond that HVNode could reach as high as the $4,291.00 RTH High and $4,294.75 Fibonacci-derived price target. 

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

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

In the worst case, the S&P 500 trades lower; activity below $4,285.25 puts in play the $4,256.75 HVNode. Thereafter, if lower, the poor, low volume structure surrounding the $4,239.75 HVNode comes into play. On an aggressive liquidation that finds acceptance (i.e., more than 1-hour of trade) past that $4,239.75 figure, participants ought to look out for responses at the $4,213.00 HVNode.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
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 | China’s digital yuan a key risk for euro, ECB says. (BBG)

Economy | Private payrolls rise 692,000, topping projections. (CNBC)

Markets | Microsoft, Google end six-year truce on legal battles. (FT)

Economy | Unemployment lifeline disappears around country. (Axios)

Health | Heart inflammation after COVID shots is heightened. (REU)

Economy | If the Federal Reserve stopped buying mortgages. (Axios)

Economy | Supreme Court declines to lift eviction moratorium. (Axios)

What People Are Saying

Innovation And Emerging Trends

Space | Musk: SpaceX is prepared to spend $30B on Starlink. (FT)

FinTech | Coinbase rolling out high-yield USDC product offering. (Block)

FinTech | IG Group and tastytrade completed a $1B partnership. (BZ)

Media | Munger says he loves Zoom, thinks video trend will stay. (CNBC)

About

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

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

Disclaimer

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

Categories
Commentary

Weekly Brief For May 9, 2021

Market Commentary

Key Takeaways: Index futures in price discovery.

  • JPMorgan puts emphasis on reflation.
  • Earnings were great. NFP not so much.
  • Indices diverge. S&P 500, Dow higher.

What Happened: Last week, U.S. stock index futures were divergent with the Nasdaq 100 and Russell 2000 lagging behind the S&P 500 and Dow Jones Industrial Average.

The push-pull between equity indices comes as market participants doubled down on the so-called “reflation” trade. JPMorgan Chase & Co (NYSE: JPM) strategists, led by Marko Kolanovic, warned many managers will “need to quickly switch gears from their deflationary playbook or risk an ‘inflation shock,’” according to Bloomberg.

“We expect a strong pickup in inflation this year, which the market will likely be slow to recognize and is poorly positioned for,” Kolanovic and his colleagues said. “A combination of boomy global growth and significant bottleneck price pressures should keep inflation on an upward trajectory while most central banks remain committed to their very accommodative stances and are looking through the inflation pickups.”

Kolanovic recommends participants cut cash and credit to increase their allocations to cyclical and value assets.

In parallel, while companies look to cut costs and boost prices, the April jobs report failed to meet expectations as people who increasingly looked for jobs had a difficult time getting hired.

Graphic: Bloomberg data shows first-quarter earnings from S&P 500 companies surging.

“We still think growth will be historically strong this year, but today’s jobs report is a reminder that there’s still work to be done,” Ally Inc-owned Ally Invest strategist Callie Cox said. “It’s a big data point for the inflation worries, too. If hiring slows for the next few months, businesses may not be able to pass on higher costs to consumers.”

Adding, though the April payroll miss was big enough to likely limit the Federal Reserve’s taper or rate hike discussions, traders signaled otherwise.

Earlier this week, Bloomberg reported on a large option bet over quicker rate hikes by the Federal Reserve. The Eurodollar bet carries a notional value of $40 billion and is focused on a potential surprise at the Jackson Hole symposium, used in the past to signal policy changes.

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

Moving on, technically speaking, equity indexes are at an interesting juncture. 

The Dow Jones Industrial Average and S&P 500 resolved their multi-week consolidations, to the upside, while the Russell 2000 is rotating within prior range and Nasdaq 100 is relatively weak, losing support and auctioning into a low-volume area.

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

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

Further, the strong break in the S&P 500, which targets the Fibonacci-derived price extension near $4,300, has thus far been validated by numerous hours of trade outside of the consolidation zone (i.e., balance area). To note, though, the structure left behind Friday’s price discovery was very poor, opening the door for potential repair.

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).

Participants ought to be cautiously optimistic given the weakness in heavily-weighted sectors like technology. Should weakness accelerate, the S&P 500 may succumb. 

Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Dow is the strongest of the four. The Nasdaq is the weakest.

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 balance area it just broke from.

That said, participants can trade from the following frameworks.

In the best case, the index trades sideways or higher; activity above the $4,210.75 boundary targets the $4,235.25 price extension. Initiative trade beyond the price extension could reach as high as the $4,266.50-$4,272.75 confluence of Fibonacci-derived price targets.

In the worst case, the index trades lower; activity below $4,210.75 puts in play the $4,179.50 spike base. Trading below the spike base negates end-of-week bullishness.

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).
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week ending May 7, 2021. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $404.00, which corresponds with $4,030.00 in the cash-settled S&P 500 Index (INDEX: SPX).

News And Analysis

Economy | Forbearance exits soar as more plans expire last week. (MND)

Economy | Demand decline fuels price wars across mortgage industry. (WSJ)

Markets | Focus shifts to U.S. prices after the jobs disappointment. (BBG)

Politics | Infrastructure talks could set course of Biden spending plans. (WSJ)

Markets | New SEC chairman sets sights on firms Citadel and Virtu. (WSJ)

Markets | Pipeline hack may push pump rices to $3, ahead of holiday. (BBG)

Recovery | Fauci says ‘no doubt’ the U.S. undercounted virus deaths. (BBG)

What People Are Saying

Innovation And Emerging Trends

Crypto | German, U.S. regulators tighten focus on the crypto market. (FT)

Space | China’s ambitions in space: national pride or taking on U.S. (FT)

Crypto | Crypto startup Dfinity set to launch a blockchain AWS rival. (FT

About

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

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

 Disclaimer

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

Categories
Commentary

Daily Brief For May 7, 2021

Market Commentary

Index futures in balance.

  • Fed warns over asset valuations.
  • Ahead: Data on nonfarm payrolls.
  • Value strong, tech relatively weak.

What Happened: U.S. stock index futures auctioned higher overnight ahead of non-farm payroll data.

Graphic updated at 8:43 AM EST.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open just outside of prior -range and -value, suggesting a 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 $4,177.25 high volume area (HVNode), which is significant because it marked a crucial pivot, on a larger time frame.

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, the compressed range over the past few sessions was resolved during Thursday’s end-of-day spike, as participants likely looked to price in expectations of strong jobs data. 

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).

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,179.50 spike base targets puts in play the $4,210.75 minimal excess high. Initiative trade beyond $4,210.75 could reach as high as the $4,235.25 Fibonacci-derived price extension. 

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

In the worst case, the S&P 500 trades lower; activity below $4,179.50 puts in play the $4,163.00 POC.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: SHIFT search suggests participants were most interested in call strikes at and above $4,200.00 in the cash-settled S&P 500 Index (INDEX: SPX), Thursday.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Dow is the strongest of the four. The Nasdaq is the weakest.

News And Analysis

Markets | Credit Review and Outlook: Bonds and the Booming Economy. (Moody’s)

Markets | Fed is warning of hidden leverage lurking in the financial system. (FT)

Markets | EU climate change head warns against curbing carbon price rally. (FP)

Markets | Cathie Wood’s ARK Innovation ETF is selling off. May it worsen? (Barron’s)

Politics | Merkel pushes back on vaccine patent waiver in row with the U.S. (BBG)

Economy | BoE foresees biggest U.K. spending boom since Thatcher era. (BBG)

Markets | Traders ramp up bets on a hawkish Fed surprise at Jackson Hole. (BBG)

Recovery | Gandhi warns ‘explosive’ COVID wave threatens India and the world. (REU)

Markets | Investors eye inflation, seasonally weaker market as tech wobbles. (REU)

What People Are Saying

Innovation And Emerging Trends

FinTech | Citi weighs launching crypto services after a surge in client interest. (FT)

FinTech | Payments, lending, and neobanks rule fintechs in emerging markets. (TC)

FinTech | Chime forced to ditch the use of word ‘bank’ after regulatory pushback. (AB)

About

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

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

Disclaimer

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

Categories
Commentary

Market Commentary For 3/8/2021

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

What Happened: After the Senate’s passage of a $1.9 trillion COVID-19 relief package, overnight, bond yields rose and U.S. stock index futures fell.

What Does It Mean: U.S. stock index futures ended last week mixed after non-farm payrolls grew by 379,000, versus a consensus of ~180,000, improvement in sales and manufacturing data, as well as news that COVID-19 coronavirus vaccinations were accelerating.

Further, on Friday, after an attempt by market participants to resolve lower, via a break of consolidation, stock indexes made a vicious rebound as near-term downside discovery reached its limit, based on market liquidity metrics and the inventory positioning of participants.

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

During Friday’s trade, the best case outcome occurred, evidenced by a failure to breach the $3,720.50 minimal excess low and upside range expansion.

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

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 either (1) remains rotational — trading responsively between the $3,861.25 low-volume area (LVNode) and $3,762.25 high-volume area (HVNode) — or (2) auctions higher, past the $3,861.25 LVNode, putting in play the $3,892.75 HVNode.

In the worst case, the S&P 500 auctions lower, through the $3,784.25 LVNode, which may portend a test of the $3,762.25 HVNode. Thereafter, if lower than $3,762.25, participants can target a repair of the $3,720.50 minimal excess low.

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

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

Levels Of Interest: $3,861.25 LVNode.

Categories
Commentary

Market Commentary For The Week Ahead: ‘Euphoria Is The Status Quo’

Key Takeaways:

  • Higher-time frame breakouts remain intact.
  • Volatility rises; markets are a tad euphoric
  • Equity funds went all in at the top, literally
  • Corporate credit outlook enhanced greatly. 
  • Earnings could rise faster than anticipated. 
  • Blue wave implies more stimulus, spending.
  • The bull market broadens as sectors rotate
  • M2 and yields break out; the Fed could act.

What Happened: As investors looked beyond a weak jobs report and political uncertainty, to added economic stimulus and the coming earnings season, U.S. index futures hit new highs.

Graphic 1: Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures

What To Expect: Friday’s session in the S&P 500 found initiative buying surface after a test of $3,774.75, the lower boundary of the low-volume area left in the wake of Thursday’s opening drive.

The long-liquidation and subsequent recovery left the market with minimal excess (i.e., a proper end to discovery) at the highs, and a strong close, taking out the overnight stat at $3,817.75 (which had low odds of remaining, given that overnight all-time highs rarely end the upside discovery process).

Noting: Excess forms after an auction has traveled too far in a particular direction and portends a sustained reversal. The absence of excess, in the case of a high, suggests not enough conviction; in such case participants will liquidate (i.e., back off the high) and strengthen the market, before following through.

In light of the market’s search for an area to establish balanced, two-sided trade, participants will come into Monday’s session knowing the following: 

  1. The multi-month upside breakout targeting S&P 500 prices as high as $4,000.00 remains intact.
  2. Prices are above all major moving averages, including the year-to-date volume-weighted average price (VWAP). 
  3. After the resolution of last Monday’s long-liquidation, the market shifted into price discovery mode, evidenced by higher prices and value migration.
  4. For numerous sessions, profile structures denoted the presence of short-covering, the result of old, weak-handed business emotionally buying to cover short positions, causing swift movement followed by a stalled advance, or two-sided intraday trade.
  5. The week ending January 8 established a v-pattern recovery, a price sequence that ought to be followed by further price discovery, as high as the 100% price projection, which happens to be near the multi-month upside breakout target at $4,000.
  6. Unsupportive speculative flows and delta (e.g., commitment of buying or selling) in some instances, as can be viewed by order flow graphics 2 and 3 below. 
  7. Alongside the long gamma narrative, in which dealers buy dips and sell rips to hedge their exposure, record options activity, among other dynamics, the S&P 500 closed near $3,800, a high open interest strike. For sustained upside directional resolve, participants would look for this exposure to roll up. 
Pictured: Divergent delta in the iShares Russell 2000 ETF (NYSE: IWM), one of the largest ETFs that track the Russell 2000
Pictured: Order flow in the SPDR S&P 500 ETF Trust (NYSE: SPY), the largest ETF that tracks the S&P 500
Graphic 4: S&P 500 tests the $3,800 high open interest strike, per SpotGamma

Given the above dynamics, the following frameworks apply for next week’s trade.

In the best case, the S&P 500 remains above its $3,762.25 high-volume node (HVNode). Expectations thereafter include continued balance or a response followed by initiative buying to take out the price extension at $3,847.75. 

Noting: Any structure that denotes meaningful buying continuation, not short-covering, would feature elongated, upside range expansion on committed volumes, as well as the migration of value. 

In the worst case, the S&P 500 initiates below its $3,762.25 HVNode. Expectations thereafter include a test of the minimal excess low near $3,732.75 (a LVNode). A break of Monday’s regular session (9:30 AM – 4:00 PM ET) low would jeopardize the bullish thesis. 

Two go, no-go levels exist; trade that finds increased involvement above $3,824.25 and below $3,775.25 would suggest a change in conviction. Anything in-between favors responsive trade.

Conclusions: In a GMO article, Jeremy Grantham expressed his opinion on recent market activity.

I am long retired from the job of portfolio management but I am happy to give my opinion here: it is highly probable that we are in a major bubble event in the U.S. market, of the type we typically have every several decades and last had in the late 1990s. It will very probably end badly, although nothing is certain. I will also tell you my definition of success for a bear market call. It is simply that sooner or later there will come a time when an investor is pleased to have been out of the market. That is to say, he will have saved money by being out, and also have reduced risk or volatility on the round trip. This definition of success absolutely does not include precise timing. (Predicting when a bubble breaks is not about valuation. All prior bubble markets have been extremely overvalued, as is this one. Overvaluation is a necessary but not sufficient condition for their bursting.) Calling the week, month, or quarter of the top is all but impossible.

Continuing, in addition to market participants reckoning with the uneven recovery, stimulus, trade, inflation, among other risks, they must also worry about something that’s arguably more important: price and value.

As of now, all broad-market indices are in an uptrend, evidenced by higher prices and value. A break below $3,600.00 in the S&P 500 would denote a substantial change in tone.

Levels Of Interest: $3,762.25 HVNode, $3,732.75 LVNode, $3,824.25 rally high, as well as the $3,847.75 price extension.

Bonus: Some opportunities unfolding in the week ahead.

Photo by Valdemaras D. from Pexels.