Categories
Commentary

Daily Brief For October 4, 2021

Market Commentary

Equity index futures were sideways to lower with bonds and the dollar.

  • Nordea: Macro backdrop worsens.
  • Ahead is a relatively light calendar.
  • October is volatile while Q4 bullish.

What Happened: U.S. stock index futures auctioned sideways to lower overnight alongside reports that China was showing little interest in a direct bailout of Evergrande and U.S. political leaders remain at odds on the debt limit.

Ahead is data on factory orders and core capital goods orders (10:00 AM ET).

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. 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. 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 6:30 AM ET, Monday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

Adding, during the prior day’s regular trade, on a strengthening of intraday breadth, among other metrics including positioning measures, the best case outcome occurred, evidenced by a recovery of Thursday’s $4,365.00 untested point of control (VPOC). 

Given the overnight response at the top of Friday’s value area – the bulk of where trade was conducted – it looks as though participants are interested in slowing the pace of downside discovery. 

Still, the S&P 500 is well below its 20- and 50-day simple moving averages and multiple distribution profile structures denote emotion, as well as a lack of commitment

Graphic: S&P 500 daily chart with 20-, 50-, and 200-day simple moving average.

Further, the aforementioned trade is happening in the context of a traditionally volatile October and a fraying in the buy-the-dip psychology.

According to Nordea, despite a calm, upward-sloping term structure, there has been “a slightly upward tilting trend” in futures tracking the S&P 500 volatility index, likely warranted by several macro reasons including a worsening in liquidity, a slowdown in growth, cost/margin problems, and risks to the Fed put.

Graphic: Fed’s GDPNow estimate lowers expectations for U.S. economic growth, via The Market Ear

LPL Research adds that aside from October, no other month has seen more 1% moves, and the fourth quarter is “historically the best for stocks, with the third quarter the worst.”

Graphic: LPL Research unpacks S&P 500 seasonality. 

Moreover, for today, given expectations of heightened volatility, participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,332.25 low volume area (LVNode) puts in play the $4,363.25 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,410.25 LVNode and $4,437.75 micro composite point of control (MCPOC), or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,332.25 LVNode puts in play the $4,299.00 VPOC. Initiative trade beyond the VPOC could reach as low as $4,260.00 overnight low (ONL) and $4,233.00 VPOC, or lower.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:30 AM ET.

Definitions

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 areas of high volume (HVNodes). Should the market trend for long periods of time, it will lack sound structure, identified as low volume areas (LVNodes). LVNodes denote directional conviction and ought to offer support on any test. 

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

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

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

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

Price Discovery (One-Timeframe Or Trend): Elongation and range expansion denotes a market seeking new prices to establish value, or acceptance (i.e., more than 30-minutes of trade at a particular price level).

News And Analysis

EM bond markets continue to grow, as do vulnerabilities.

There’s is no inflation without income; there’s no income.

Action on Evergrande to avoid financial, social instability.

Global growth steady as delta spurs big regional swings.

Doomsday clock for U.S. debt ticks on political clashings.

Global Credit Conditions Q4: supply strain, inflation pain.

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 August 30, 2021

Market Commentary

Equity index futures, bonds, dollar, VIX sideways to higher. Commodities were mixed.

  • Positioning lightened. Ample liquidity.
  • Ahead: Data on pending home sales.

What Happened: U.S. stock index futures auctioned sideways to higher overnight alongside news that the Federal Reserve would not make changes to its policy.

Ahead is data on pending home sales (10:00 AM ET).

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of 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 6:30 AM ET, Monday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open near prior-range and -value, suggesting a more limited potential for immediate directional opportunity.

Adding, during the prior day’s regular trade, on strong intraday breadth and lackluster market liquidity metrics, the best case outcome occurred, evidenced by new all-time highs in the S&P 500 and Nasdaq 100. This is significant because it suggests continued bullishness after a v-pattern recovery.

V-Pattern: A pattern that forms after a market establishes a high, retests some support, and then breaks above said high. In most cases, this pattern portends continuation.

Further, the aforementioned trade is happening in the context of the Federal Reserve’s commitment to stay the course with respect to monetary policy. This theme’s implications on price are supportive; to elaborate, the absence of a rate hike or taper, alongside low bond and equity market volatility, among other things, suggests liquidity will remain ample.

The key for this week is U.S. jobs data later; those metrics will allow participants to better contextualize the taper timeline. At the same time, there’s been a cooling amongst some positioning metrics, also.

Graphic: Goldman Sachs Group Inc (NYSE: GS) Sentiment Indicator. According to The Market Ear, the “indicator measures stock positioning across retail, institutional, and foreign investors versus the past 12 months. Readings below -1.0 or above +1.0 indicate extreme positions that are significant in predicting future returns.”

Moreover, for today, given poor structure, a divergent volume delta Friday, as well as a decline in metrics like DIX and GEX, the odds of significant upside volatility are lower. Still, participants may make use of the following objective frameworks for today’s trade.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,513.50 overnight high (ONH) puts in play the $4,520.25 Fibonacci extension. Initiative trade beyond the Fibonacci level could reach as high as $4,556.25 and $4,592.25, two other key Fibonacci extensions.

In the worst case, the S&P 500 trades lower; activity below the $4,513.50 ONH puts in play the $4,495.00 high volume area (HVNode). Initiative trade beyond the $4,495.00 HVNode could reach as low as the $4,481.75 HVNode and $4,454.25 LVNode, or lower. 

To note, the $4,454.25 LVNode corresponds with an anchored volume-weighted average price (VWAP), a metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

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.

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

DIX: For every buyer is a seller (usually a market maker). Using DIX — which is derived from short sales (i.e., liquidity provision on the market-making side) — we can measure buying pressure.

Gamma: Gamma is the sensitivity of an option to changes in the underlying price. Dealers that take the other side of options trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:30 AM ET.

News And Analysis

Banks are effectively sterilizing central bank liquidity.

Morgan Stanley eyes mid-cycle transition, correction.

An options turn upheavals into mid-month sure thing.

Ida made landfall in Louisiana, stronger than Katrina.

Sustained vaccine demand to support pharma growth.

Billionaire Paulson is calling cryptocurrency a bubble.

Crypto nomads – surfing the world for risk and profit.

Cadano’s Ada is the latest cryptocurrency surging up.

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 27, 2021

Market Commentary

Led by the Russell 2000, U.S. equity index futures explored lower overnight.

  • Risk-off everything China-related.
  • Ahead: Data dump and earnings.
  • S&P stuck in range, VWAP pinch.

What Happened: U.S. stock index futures auctioned sideways to lower as equity weakness in China deepened. Chinese government bonds and the yuan fell also, alongside fears that U.S. funds are selling Hong Kong and China assets aggressively.

In light of the volatility, Crescat Capital portfolio manager Otavio Costa tweeted: “A yuan devaluation is one of the main deflationary risks today. I know you heard this over and over again… but something is indeed unraveling. Chinese banks and ADRs are in big trouble. PBOC will be forced to act.”

A devaluation is indeed something to fear. The People’s Bank of China (PBOC) roiled global equity markets after its 2015 yuan devaluation.

In addition to this context, ahead, participants will receive data on durable and nondefense capital good orders, the S&P Case-Shiller home price index, consumer confidence, housing vacancies, as well as Apple Inc (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT), and Alphabet Inc (NASDAQ: GOOGL) earnings.

Graphic updated 6:40 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. See here for more on the Dark Pool Index and Gamma. A positive Dark Pool Index reading is bullish. At the same time, the higher (lower) the gamma, the less (more) volatility. SHIFT Search data used for options activity. Note that options flow is sorted by the call premium spent; if green and more (less) positive then more (less) was spent on call options. Breadth reflects a reading of the prior day’s Advance/Decline indicator.

What To Expect: As of 6:40 AM ET, 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.

After establishing a new high – $4,416.75 – overnight, weakness in China spilled over; U.S. equity index futures, led by the Russell 2000, traded lower in conjunction with yields, a boost to the tech- and growth-heavy Nasdaq 100.

Rates: Low rates have to potential to increase the present value of future earnings making stocks, especially those that are high growth, more attractive. To note, inflation and rates move inversely to each other. Low rates stimulate demand for loans (i.e., borrowing money is more attractive). In conjunction with the rapid recovery, lower rates may solicit hawkish commentary as policymakers look to inhibit inflation.

To note, Monday’s trade happened on positive, albeit weak breadth, similar to Friday’s session. At the same time, a Volume Weighted Average Price pinch developed.

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

Look to buy above a flat/rising VWAP pinch. Sell below a flat/declining VWAP pinch.

All that said, similar to Monday, a key thing to watch for is an auction failure and subsequent liquidation break, confirmed by trade below the $4,372.50 regular trade low (RTH Low).

Liquidation Breaks: The profile shape suggests participants were “too” long and had poor location.

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,398.75 high volume area (HVNode) pivot puts in play the $4,408.75 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,416.75 overnight high (ONH) and $4,428.25 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below the $4,398.75 HVNode pivot puts in play the $4,390.50 minimal excess low. Initiative trade beyond the $4,390.50 low could reach as low as the $4,374.25 HVNode and $4,353.00 untested Point of Control (VPOC).

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

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

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.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Graphic updated 6:40 AM ET.

News And Analysis

China’s yuan, bonds tank amid fears of foreign selling.

U.S. infrastructure talks are encountering some snags.

Bitcoin steady below $40,000 on Amazon speculation.

Hypothetical look at 35 years of SPX option strategies.

The Federal Reserve meeting starts today. Watch this.

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 14, 2021

Market Commentary

U.S. equity index futures sideways overnight.

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

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

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

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

Graphic updated 6:44 AM ET.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by an intraday liquidation break and the subsequent acceptance below a Volume Weighted Average Price (VWAP) anchored from the CPI release (blue in color on the below profile graphic).

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

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

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

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

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

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

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

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

Graphic: Volatility before and after OPEX, via SpotGamma.

For today, participants can trade from the following frameworks. 

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

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

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

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

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

If participants were to auction and find acceptance into areas of prior low volume, then future discovery ought to be volatile and quick as participants look to areas of high volume for favorable entry or exit.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: SHIFT search suggests participants were most interested in call strikes at and below the price in the cash-settled S&P 500 (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), yesterday. Noting, yesterday and over the past few weeks, there’s been increased activity in long-dated put options. 

News And Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What People Are Saying

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For July 12, 2021

Market Commentary

U.S. equity index futures sideways overnight.

  • PBOC cut RRR, tax talk, and virus.
  • Ahead: WASDE, Fed speak, G20.
  • SPX, RUT, DJI weak. NDX firmed.

What Happened: U.S. stock index futures auctioned within prior range alongside news the ECB would revise forward guidance and maintain asset purchases until “at least” March of 2022. 

Additionally, the People’s Bank of China made a 50 basis-point cut to the reserve ratio at most banks given a weakened economic outlook. At the same time, G20 finance ministers are meeting over a global tax agreement and some concerns were raised over the spread of COVID-19 variants.

Ahead is the WASDE crop report for July and Fed speak by Neel Kashkari. Later, Janet Yellen will meet with finance ministers in Brussels. 

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, suggesting a limited potential for immediate directional opportunity.

Adding, last week, U.S. stock index futures auctioned sideways to higher, only after enduring a brief liquidation alongside anxieties surrounding the spread of COVID-19 variants, as well as an evolution in monetary policy. 

Expectations into the middle of July call for a supported S&P 500; thereafter, the window for fundamental dynamics to take over is opened

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

Graphic: Volatility before and after OPEX, via SpotGamma.

These expectations of increased volatility line up with the busy earnings season, kicked off by banks reporting second-quarter results this week. Additionally, a focus for participants in the coming days are some releases on consumer, producer, and import prices, as well as industrial production, consumer sentiment, and retail sales.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the high volume area (HVNode) pivot at $4,341.75 puts in play the $4,353.25 low volume area (LVNode). Trade beyond that signpost could reach as high as the $4,365.50 overnight high (ONH) and $4,373.00 Fibonacci extension.

In the worst case, the S&P 500 trades lower; activity below $4,341.75 puts in play the $4,314.75 HVNode. Initiative trade beyond that signpost could reach as low as the $4,291.00 untested Point of Control (POC) and $4,256.75 HVNode.

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

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

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

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.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Weekly candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: SHIFT search suggests participants were most interested in call strikes at and below the price in the cash-settled S&P 500 (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. Noting, over the past few weeks, there’s been increased activity in long-dated put options.

News And Analysis

Economy | Global tax overhaul gains steam as G20 backs new levies. (NYT)

FinTech | Once Robinhood ‘house money’ gone, trading to lose allure. (NI)

FinTech | On crypto exchanges, the trades do not always add up right. (BBG)

Markets | Dealmakers see M&A rush, then chills, on antitrust progress. (REU)

Economy | China’s rate cut points to weaker than expected economy. (BBG)

FinTech | Square CEO doubles down on crypto, adds hardware wallet. (FL)

Economy | Recovery diminishes risks for reducing pandemic support. (Moody’s)

Energy | Oil prices loom over Biden’s bid to throttle drilling right sales. (BBG)

Economy | ECB’s Lagarde foresees a July policy shift, 2022 transition. (BBG)

What People Are Saying

About

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

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

 Disclaimer

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

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.

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.

Categories
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

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.

Categories
Results

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

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

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

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

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

Note: Click here to view all transactions.

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

To preface, gaps ought to fill quickly. 

Should they not, that’s a signal of weakness; leaving value behind on a gap-fill or failing to fill a gap (i.e., remaining outside of the prior session’s range) is a go-with indicator. 

Auctioning and spending at least 1-hour of trade back in the prior range suggests a lack of conviction.

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

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

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

The above put-side structure was initiated against the $13,300 high volume area, also a prior balance area boundary. The reason being, a structurally sound market will build on past areas of high volume. Should the market trend for long periods of time, it will lack sound structure (identified as a low volume area which denotes directional conviction and ought to offer support on any test). If participants were to auction and find acceptance into areas of prior low volume, then future discovery ought to be volatile and quick as participants look to areas of high volume for favorable entry or exit.

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

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

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

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

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

Reflection: Hindsight is 20/20.

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

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

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

Categories
Commentary

Daily Brief For May 19, 2021

Market Commentary

Index futures in price discovery.

  • Light calendar – Fed speak, minutes.
  • Indices lower. Potential for response.

What Happened: U.S. stock index futures auctioned lower, overnight, alongside fears of inflation and a COVID-19 resurgence in some parts of the world.

Today’s calendar is rather light. Of interest is Fed-speak, ahead of the publication of April minutes.

Graphic updated 7:05 AM EST.

What To Expect: Wednesday’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, after failing at the $4,177.25 developing ledge, the worst-case outcome occurred, evidenced by initiative trade below the $4,129.25 high volume area (HVNode), on an end-of-day spike.

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

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.

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 $4,069.25 HVNode has the potential to trade up into the $4,122.25 HVNode. Initiative trade beyond the $4,122.25 HVNode could reach as high as the $4,134.00 spike base, a major pivot (i.e., above = bullish, below = neutral-to-bearish) for today’s trade.

In the worst case, the S&P 500 trades lower; activity below the $4,069.25 HVNode targets the LVNode boundary at $4,050.75. Auctioning past that boundary puts in play the poor structure at $4,015.00 and $4,001.00. Ultimately, in case of lower prices, participants would look for responsive buying to appear at and below the $3,970.75 price projection.

Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: SHIFT search suggests participants were most interested in longer-dated put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), May 18.

News And Analysis

Markets | Bitcoin plunges to $38,000 as Elon Musk-fueled rally collapses. (BBG)

Markets | The U.S. dollar is not crashing no matter what the banks say. (BBG)

Recovery | Fully vaccinated people could need a yearly COVID booster shot. (CNBC)

Economy | Yellen pushes higher taxes, stronger unions to the U.S. chamber. (CNBC)

Economy | U.K. inflation more than doubles as post-lockdown climb begins. (REU)

Economy | Biden tax proposal will most likely have a limited effect on ratings. (S&P)

Economy | European Union plans to open borders to vaccinated travelers. (Axios)

Energy | U.S. shale firms are limiting their outputs despite rising prices. (BBG)

Markets | High yield default rate is at its lowest rate since October 2019. (Forbes)

Economy | Construction starts pulled back in April due to supply problems. (MND)

What People Are Saying

Innovation And Emerging Trends

Markets | Biggest risk in markets has shifted; concerns over Fed inaction. (BBG)

FinTech | Global trading platform Stake adds $30M from Tiger, DST Global. (BZ)

FinTech | Secfi secures investment for its stock option financing platform. (BZ)

Energy | Paper company wants to make a wooden rival to car batteries. (BBG)

Trading | Fidelity’s pitch to America’s teens: no-fee brokerage accounts. (WSJ)

About

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

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

Disclaimer

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