Tag: ONH – Overnight High

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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.

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Categories
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.

Subscribe
Categories
Commentary

Daily Brief For June 29, 2021

Market Commentary

Equity index futures diverge, trade sideways.

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

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

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

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

Graphic updated 7:20 AM ET.

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

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

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

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

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

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

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

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

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

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

News And Analysis

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

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

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

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

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

What People Are Saying

Innovation And Emerging Trends

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

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

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

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

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

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

About

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

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

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For June 28, 2021

Market Commentary

Equity index futures diverge, auction within prior range.

  • A slow start to a rather busy week.
  • Market is meaningfully overvalued.
  • Ahead: Fed speak, manufacturing.
  • /NQ firmed and the /ES backed off.

What Happened: U.S. stock index futures traded sideways to lower, ahead of what’s expected to be a light day.

Further, President Biden is looking to push along his infrastructure plan and the U.K. cracked down on cryptocurrency exchanges. 

On the calendar is Dallas Fed Manufacturing Activity. Also, John Williams, Randal Quarles, and Tom Barkin, of the Federal Reserve, are to speak.

Graphic updated 6:55 AM ET.

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. This likely limits the potential for immediate directional opportunity.

Adding, alongside positive economic and political developments, U.S. equity index futures traded higher, last week, in conjunction with narrowing breadth, weaker seasonality, and other things. 

Moreover, last night, the S&P 500 established a new overnight high (ONH) before trading back into range. Anchoring a Volume Weighted Average Price (VWAP) at that peak suggests the average overnight seller is in a winning position. Should the day timeframe find acceptance above that VWAP (yellow in color on the below chart), that is not a positive for those weak-handed overnight players that tend to trade in small size. 

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

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

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,267.00 Point of Control (POC) puts in play the $4,278.75 ONH. Initiative trade beyond the ONH could reach as high as $4,294.75, a Fibonacci-derived price 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.

In the worst case, the S&P 500 trades lower; activity below the $4,267.00 POC puts in play the $4,257.00 high volume area (HVNode), first. Failure to respond leaves the $4,248.25 low volume area (LVNode) exposed. Trade beyond that signpost is concerning; in such a case, a test of the $4,239.75 micro-composite point of control (MCPOC) and $4,229.00 VPOC is expected.

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.

Even lower? Yikes. Look for responses at the $4,213.00 and $4,200.25 HVNodes. The $4,200.25 signpost corresponds with an important 50% Fibonacci retracement and LVNode boundary.

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.

News And Analysis

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

Markets | Intel CEO says the chip shortage will hit bottom in second half. (BBG)

Economy | The U.S. cannot afford another housing market ‘boom and bust’. (FT)

Economy | Bank of Russia to consider key interest rate increase in July. (BBG)

Markets | Johnson & Johnson to pay $260M on claims it sparked epidemic. (Axios)

Politics | The last-and only-foreign scientist in the Wuhan lab speaks out. (BBG)

Markets | Tesla dealt a blow as almost all cars in China need a safety fix. (BBG)

Politics | U.S. warplanes strike against an Iran-backed militia in Iraq, Syria. (REU)

Energy | The U.S. shale industry tempers output even as oil price jumps. (REU)

What People Are Saying

Innovation And Emerging Trends

Work | UBS to let two-thirds of employees adopt permanent hybrid work. (BBG)

FinTech | CME joins battle for retail bond traders with new small products. (BBG)

Energy | Japan allows restarts of nuclear reactors older than 40 years. (Nikkei)

Tech | Study finds China’s cyber power at least a decade behind the U.S. (FT)

FinTech | Chaka first startup to receive SEC license for trading in Nigeria. (TC)

About

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

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

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For 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.

Subscribe
Categories
Commentary

Daily Brief For June 24, 2021

Market Commentary

Equity index futures exit balance, auction higher overnight.

  • Nike, FedEx, Carnival will report.
  • Europe targets travel on variants.
  • Ahead: A heavy events calendar.
  • Indices trade sideways to higher.

What Happened: U.S. stock index futures auctioned higher ahead of a busy day.

Of interest? Data on weekly initial jobless claims, first-quarter U.S. GDP, durable good orders, manufacturing, Fed speak, the Bank of England’s monetary policy decision, and updates on a bipartisan infrastructure plan. Participants are also on the lookout for the Federal Reserve’s latest bank stress test results, after market close.

Adding, some areas of Europe are calling for tougher travel rules to fight COVID-19 variants. 

Graphic updated 7:25 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by sideways trade above the $4,229.00 VPOC. This is significant because it signaled acceptance (i.e, defense of higher prices). 

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.

The most recent price rise, followed by sideways-to-higher trade, has a lot to do with how participants are positioned in the options market. According to some metrics, the market is trading in a so-called “long-gamma” environment.

What does this mean? Most funds are committed to holding long positions. In the interest of lower volatility returns, these funds will collar off their positions, selling calls to finance the purchase of downside put protection. 

As a result of this activity, options dealers are long upside and short downside protection. This exposure must be hedged; dealers will sell into strength as their call (put) positions gain (lose) value and buy into weakness as their call (put) positions lose (gain) value. 

Now, unlike theory suggests, dealers will hedge call losses (gains) quicker (slower). This leads to “long-gamma,” a dynamic that crushes volatility and promotes momentum, observed by lengthy sprints — like the one the market is currently in — followed by rapid de-risking events as the market transitions into “short-gamma.” 

Further, last week, coming into the large June monthly options expiration (OPEX), participants saw good odds, in conjunction with fundamental developments (e.g., Federal Reserve policy outlook), the market would resolve directionally. Well, not much has happened. With overwriting now back in favor – alongside a crush in implied volatility, among other things – expect more of the same: pinning.

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.

In other areas, we see breadth metrics taking a hit; the ratio between advancing and declining issues is coming off its highs, a signal that underlying strength is easing. 

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 $4,251.25 high volume area (HVNode) puts in play the $4,258.00 overnight high (ONH). Initiative trade beyond the ONH puts in play the Fibonacci-derived price targets near $4,294.00. 

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.

In the worst case, the S&P 500 trades lower; activity below the $4,237.25 HVNode puts in play the $4,229.00 VPOC. On a break of the $4,228.25 HVNode, participants ought to look for a response near the HVNode at $4,213.00.

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. Noting, similar to the day prior, there was interest in farther-dated put strikes at and above current prices. This may denote opportunistic hedging or speculation on the downside.

News And Analysis

Politics | Chinese COVID-19 gene data was removed from NIH database. (WSJ)

Economy | The BOE lifts inflation forecast but keeps rates, QE unchanged. (G)

Markets | China boosts short-term cash injection to ease liquidity worries. (BBG)

Economy | Fed’s Bostic sees 2022 rate liftoff, taper call in a few months. (BBG)

COVID | Pfizer and Moderna’s vaccine likely linked to heart inflammation. (REU)

COVID | Brazil sets a single-day record for COVID-19 coronavirus cases. (REU)

Politics | President Biden’s push for infrastructure deal nears the goal line. (BBG)

Markets | Credit Suisse’s chairman sends a chill through investment bank. (BBG)

Markets | Fannie, Freddie plunged as SCOTUS deals a blow to investors. (BBG)

What People Are Saying

https://twitter.com/vol_christopher/status/1404897859397431300?s=20

Innovation And Emerging Trends

Space | In overtaking U.S., China plans crewed missions to Mars by 2033. (FT)

FinTech | On lower fees, Vanguard steps up its push into financial advice. (FT)

Energy | Unpacking the past and present transitions in energy systems. (REU)

FinTech | The battle forming in the European financial technology scene. (F)

Markets | Gensler highlighting disclosures and payments for order flow. (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.

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Commentary

Daily Brief For June 23, 2021

Market Commentary

Equity index futures attempt to balance after strong recovery.

  • Fed’s Powell: Inflation is transitory.
  • Ahead: Home sales, CA balances.
  • Indexes traded sideways to higher.

What Happened: U.S. stock index futures auctioned sideways to higher as inflation concerns eased.

On Tuesday, Federal Reserve chair Jerome Powell said the bank would not raise rates while reiterating price increases are temporary.

In a statement, BlackRock strategists note: “We believe the Fed’s new outlook will not translate into significantly higher policy rates any time soon. This, combined with the powerful restart, underpins our pro-risk stance.”

Ahead is data on U.S. home sales and the current account balance. Tomorrow, the Bank of England issues its interest rate decision and the Federal Reserve will release the results of bank stress tests.

Graphic updated 7:00 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 initiative trade beyond the $4,235.00 Virgin Point of Control (VPOC).

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.

As noted yesterday, trading above the $4,227.75 high volume area (HVNode) – the site where initiative selling accelerated the week prior – was a very positive outcome. Now, any participant that sold short, from that breakdown, is in a losing position. On the other hand, both Monday and Tuesday’s multi-distribution profiles, in conjunction with market liquidity metrics, denote short-covering activity, not substantive buying. Such structures often offer little-to-no support on liquidations. Therefore, participants ought to beware of an increased potential to violently backfill and repair.

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 dynamic, with what is historically the weakest 2-week period of the year, warns participants should not be surprised if indexes trade sideways to lower, into the end of the week. Positioning metrics support this notion, too.

Thereafter, seasonality flips, becoming most positive for the Nasdaq 100.

Graphic: Nasdaq 100 nears its best period of the year, via The Market Ear. Inflows are in agreement, too.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,229.00 VPOC puts in play the $4,249.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,258.00 overnight high (ONH) and Fibonacci-derived price targets near $4,294.00. 

Overnight 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 $4,229.00 VPOC puts in play the HVNodes at $4,213.00 and $4,177.25.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Note the zone of overlapping Fibonacci targets in the Nasdaq 100.
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, in comparison to the day prior, there was interest in farther-dated put strikes at and above current prices. This may denote opportunistic hedging or speculation on the downside. 

News And Analysis

Politics | President Biden pushes for high-level meetings with Beijing. (FT)

Politics | Russia fires warning shots at British warship in Black Sea. (BBG)

Trade | Warehouse rents surged on bidding wars for scarce spaces. (WSJ)

Markets | Nonbank lenders are quickly dominating mortgage market. (WSJ)

Energy | Physical oil market gains suggest more support for the rally. (REU)

Economy | The most unexpected pandemic winner is small business. (Axios)

Economy | 2021 corporate defaults nearly 60% lower than last year. (S&P)

What People Are Saying

https://twitter.com/MarcusSpillane/status/1407387223377518603?s=20

Innovation And Emerging Trends

Analysis | Inner Game with Steve Cohen. Lifting the veil on hedge funds. (SR)

Startups | Detroit turns into a startup ecosystem, great for entrepreneurs. (BZ)

FinTech | Decentralized finance is ready to disrupt financial technology. (NDAQ)

Work | The world’s financial centers are struggling back to their offices. (BBG)

Tech | Quantum data link established between two distant Chinese cities. (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

Daily Brief For June 22, 2021

Market Commentary

Index futures reject lower prices, rise rapidly, then trade sideways.

  • Cryptocurrencies in peril, investors weigh Fed.
  • Ahead: Fed speak, home sales, manufacturing.
  • Indices trade sideways to higher after rejection.

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

Ahead, Federal Reserve Chair Jerome Powell will testify before the House Select Subcommittee on the coronavirus crisis. Beyond Powell’s appearance, participants also have to watch out for data on U.S. existing home sales and June Richmond Fed Manufacturing, as well as Fed-speak by Loretta Mester and Mary Daly. 

In other parts of the market, cryptocurrencies sold while WTI crude traders finally found responsive sellers at around $73.40.

Graphic updated 7:25 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,161.00 spike base. This is significant because that reference marked the beginning of a breakdown from value, Friday.

The violent price rise comes just after investors sold, heavily, cyclical stocks – evidenced by relative weakness in sectors like financials and transportation – after policymakers’ statements on stimulus, the week prior. Adding together metrics like market liquidity, options flow, and technical analysis, the picture turns murky; today’s most important obstacle in the S&P 500 is the $4,227.75 high volume area (HVNode). Trading above that level, expect sideways to higher. Remain below, volatility.

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.

“There’s probably going to be some back and forth here,” said Tracie McMillion, Wells Fargo Investment Institute head of global asset allocation strategy. “There is a lot of cash on the sidelines right now. Some of that is going to be earmarked to go into the markets, and we think the best place right now to be investing is in the equity markets.”

Graphic: S&P 500 is trading in the worst 2-week period of the year, via The Market Ear.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,227.75 HVNode puts in play the $4,235.00 Virgin Point of Control (VPOC). Initiative trade beyond the VPOC could reach as high as the $4,258.00 overnight high (ONH). 

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.

Overnight 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 $4,200.00 puts in play the $4,190.75 low volume area (LVNode). Thereafter, if lower, participants may look for a response at the $4,177.25 HVNode.

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

News And Analysis

Trade | EU industry hands Brussels headache over carbon border levy. (REU)

Economy | Tax policy may become a volatility trigger amid new debates. (BLK)

Economy | Merkel warns ‘gigantic sums’ needed to meet its challenges. (BBG)

Markets | EU launches an antitrust investigation into Google’s ad tech. (Axios)

Economy | ECB rate-cut bets fade into obscurity on new growth outlook. (BBG)

Commodity | Trafigura Group says oil could hit $100 a barrel next year. (BBG)

Economy | Even after tax hike, U.S. firms to pay less than foreign rivals. (REU)

What People Are Saying

Innovation And Emerging Trends

Innovation | Will automation cause an increase in the unemployment rate? (ARK)

Startups | Mexico becomes a hub of 150+ fintech startups in Latin America. (Entrepreneur)

FinTech | Digital asset trading venues on a rise amid regulation, innovation. (MM)

FinTech | Unpacking fintech investments by the top insurance companies. (Medici)

Markets | Inflation or deflation a big risk to equity, fixed income, and more? (ARK)

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 June 20, 2021

Too Lazy; Didn’t Read: As the market enters into a seasonally weak period, participants have noticed a divergence appear across the broader market. A breakdown in individual sectors – financials and transportation, for instance – and breadth, policy tightening concerns, outflows, elevated skew, put/call ratios, and degrossing on risk-taking (e.g., speculative activity in so-called meme stocks), in conjunction with the passage of Quadruple Witching, may portend increased volatility.

Market Commentary

Key Takeaways: Index futures diverge. Risk-off sentiment returns.

  • Fears over inflation and taper sparking movements.
  • Ahead: GDP, Home sales, PMI, Claims, Fed speak.
  • Indices sideways to lower; growth, tech stay strong.
Weekly price action graphic updated Sunday, June 20, 2021, at 12:00 PM ET.

What Happened: Last week, U.S. stock index futures diverged.

The Nasdaq 100 traded relatively strong, in comparison to the weaker S&P 500, Russell 2000, and Dow Jones Industrial Average. This action comes as the Federal Reserve signaled a faster-than-expected pace of policy tightening (learn more about the impact of policy tightening, here).

At the same time, in conjunction with the divergence in major indexes, participants saw sectoral breakdowns, a concern that may portend increased volatility after ‘Quadruple Witching’ Friday, or the rebalancing of benchmarks, as well as the expiration of stock index futures, stock index options, stock options, and single stock futures.

In light of the event, participants found it very difficult to discover prices. That’s according to Matt Tuttle, the CEO at Tuttle Capital Managment LLC. 

“When you get one of these events, you get noises around share movements,” Tuttle said by phone. “It messes up the information that we’re seeing.”

Adding, this Quadruple Witching Friday may throw a wrench into the recent bullishness.

Much of the advance, since the election, came in light of a historically bullish period for markets, amid increased mobility and reflation, supportive structural flows, as well as the pricing in of positive earnings expectations.

Now that the reaction to earnings was lackluster, in addition to the passage of a large derivative expiration and move into a seasonally weak period, the odds of volatility are substantially higher. 

Why? Most funds are committed to holding long positions. In the interest of lower volatility returns, these funds will collar off their positions, selling calls to finance the purchase of downside put protection. 

As a result of this activity, options dealers are long upside and short downside protection. 

This exposure must be hedged; dealers will sell into strength as their call (put) positions gain (lose) value and buy into weakness as their call (put) positions lose (gain) value. 

Now, unlike theory suggests, dealers will hedge call losses (gains) quicker (slower). This leads to “long-gamma,” a dynamic that crushes volatility and promotes momentum, observed by lengthy sprints — like the one the market is currently in — followed by rapid de-risking events as the market transitions into “short-gamma.” 

“‘Equities stable on hawkish Fed guidance’ is the wrong read here,” Nomura’s Charlie McElligott notes. “Equities are stable for the same reason they’ve been chopping for weeks: markets continue choking on an oversupply of gamma from vol sellers!”

The implications of this volatility supply can be summed up with the below graphic.

Given that OPEX will lead to a drop in gamma exposures, the market will, in the simplest way, be subject to more movement in its attempt to price in changing financial conditions.

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.

“The extremely low SPX realized volatility is consistent with the possibility that 18-Jun has left ‘the street’ long index gamma, in which case realized volatility could pick up once positions are cleaner,” Rocky Fishman of Goldman Sachs said.

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 $4,153.25 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 $4,153.25 puts in play the HVNodes at $4,177.25 and $4,199.25. Initiative trade beyond $4,199.25 could reach as high as the $4,227.75 HVNode, $4,235.00 Point Of Control (POC), and $4,258.00 overnight high (ONH). 

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 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 $4,153.25 puts in play the $4,122.25 HVNode. Thereafter, if lower, participants should look for responses at the $4,069.25 HVNode and $4,050.75 low volume area (LVNode).

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).
Graphic: SHIFT search suggests participants, based on dollars committed, were most interested in 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 | Big shift in the so-called “dot-plot” that tracks rate projections. (Moody’s)

Economy | Housing boom moderates on lower building permit authorizations. (S&P)

Economy | Capital gains – a century-old tax break gets a rush of attention. (WSJ)

Economy | Supply crunch risks are extending into 2022, stocking inflation. (WSJ)

Economy | New Chinese regulation requires recovery, resolution plans. (Moody’s)

Markets | Troubled companies take pages from AMC playbook, selling stock. (WSJ)

Markets | Brace for huge oil volatility one U.S. trading group suggests. (REU)

Economy | U.S. bank loan-to-deposit ratios fall and pressure margins. (S&P)

Economy | U.S. economic recovery doesn’t have to follow herd immunity. (Moody’s)

Economy | The U.S. distress ratio continued its downward trend last month. (S&P)

Economy | Global structured finance – charting the recovery from COVID-19. (S&P)

Economy | The MBA is predicting another decline in new home sales. (MND)

Markets | Bond market in midst of repricing, but not the kind we’re used to. (MND)

What People Are Saying

Innovation And Emerging Trends

FinTech | Owning the paycheck is the key to financial technology success. (TC)

FinTech | Mark Cuban says ‘banks should be scared’ of crypto-based DeFi. (CNBC)

FinTech | Outlook: How the API economy is reinventing financial services. (CBI)

FinTech | Analysis: Big differences between a digital dollar and a CBDC. (BBG)

FinTech | Cryptocurrency lode of $100B stirs worries over hidden danger. (BBG)

FinTech | Axis-Z is working hard to bring virtual reality (VR) tech to trading. (BZ)

FinTech | OVTLYR’s platform helps investors take advantage of volatility. (BZ)

FinTech | Liti Capital allows investors tokenized access to litigation finance. (BZ)

Disclaimer

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 18, 2021

Editor’s Note: Happy Friday! In the coming days, there will be some additions to the newsletter helping you better identify the levels in play. Also, I will try to improve engagement with some visual effects.

Stay tuned,

Renato

Market Commentary

Index futures balance after violent downside discovery.

  • Inflation fears spark morning dips.
  • EU opened up travel with the US.
  • Indicies traded sideways to lower.

What Happened: U.S. stock index futures auctioned sideways to lower after violent downside discovery just days prior.

Ahead, there are no significant economic releases.

Graphic updated 7:48 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 at and around the VWAP (blue in color on the below graphic) anchored from the time of Wednesday’s Federal Reserve event. This suggests the average buyer, since the event, is regaining strength. 

So, what is needed in the coming days? Ideally, the S&P 500 trades (and stays) above the blue VWAP line.

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

Moreover, since the Federal Reserve’s signal of the faster-than-expected pace of policy tightening provided participants more clarity, major indices broke out of balance, but in different directions. 

The S&P 500, Russell 2000, and Dow Jones Industrial Average are trading relatively weak in comparison to the tech- and growth-focused Nasdaq 100 which quickly recovered FOMC losses to discover higher prices. This divergence, in conjunction with sectoral breakdowns, is concerning and may foreshadow increased volatility after the monthly options expiration (OPEX), into quarter-end. 

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.

According to SpotGamma’s models, up to 50% of the gamma in and across the S&P 500 complex is expiring. Here’s an explanation and visual to understand why that matters.

After those gamma exposures drop (and related hedging forces disappear), the market will be subject to more movement. That is when things will get interesting. 

Based on the price action across the biggest FANGMANT stocks, participants would think another run higher is likely. However, looking at the breakdowns in individual sectors – financials and transportation, for instance – a dip in certain breadth metrics, elevated skew, put/call ratios, and volatility spreads, the picture becomes less clear. 

Without going into things too deep, the odds favor volatility and sideways trade for today’s session.

Like yesterday, in the best case, the S&P 500 trades sideways or higher; activity above the $4,207.25 VWAP (blue in color on the below chart) puts in play the $4,227.25 HVNode. Initiative trade beyond that HVNode could reach as high as the $4,235.00 Virgin Point Of Control (VPOC), $4,249.00 low volume area (LVNode), and $4,258.00 overnight high (ONH).

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

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

In the worst case, the S&P 500 trades lower; activity below the blue VWAP suggests a risk-off sentiment remains. In such a case, there is the potential to test lower, into the $4,182.50 overnight low (ONL) and $4,177.25 HVNode. Breaking $4,177.25 suggests a higher potential to trade to the HVNodes at $4,153.25, $4,122.25, and $4,069.25.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX), yesterday. On the other hand, in the cash-settled Nasdaq 100 Index (INDEX: NDX), participants were most interested in call strikes at and above current prices.

News And Analysis

Economy | Fed’s Bullar says inflation running hotter than expected. (REU)

Economy | EU opens up for Americans wanting to vacation abroad. (BBG)

Economy | Faster world recovery boosting prices, inflation will halt. (Fitch)

Economy | Fear during the COVID-19 comeback largely transitory. (Axios)

Economy | Inflation data holding key to Fannie Mae’s new forecast. (MND)

Politics | Pacific cable project sinks after warning against China bid. (REU)

Politics | Supreme Court rejects GOP challenge to Affordable Care. (BBG)

What People Are Saying

https://twitter.com/disclosetv/status/1405582384993558542?s=20
https://twitter.com/vol_christopher/status/1405156690908024838?s=20

Innovation And Emerging Trends

FinTech | Mark Cuban wants stablecoin regulation amid token crash. (BBG)

Markets | Google to open first retail store steps away from Apple. (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.

Subscribe