Categories
Commentary

Daily Brief For September 22, 2021

Market Commentary

Equity index futures trade sideways to higher with yields and the dollar. Volatility ebbs.

  • Despite risks, market in solid position.
  • Ahead: Existing homes sales, FOMC.
  • Value overlaps; a breakout is coming.

What Happened: U.S. stock index futures auctioned sideways as participants looked to position themselves for new information with respect to the Federal Reserve’s intent to make policy adjustments.

In other news, Wall Street analysts suggest China’s Evergrande debacle is not a Lehman moment. 

Ahead is data on existing home sales (8:30 AM ET), an FOMC statement (2 PM ET), as well as Fed Chair Jerome Powell’s news conference (2:30 PM 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, 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, on lackluster intraday breadth and market liquidity metrics, the worst-case outcome occurred, evidenced by symmetrical, overlapping value areas.

This is significant because sideways trade (i.e., balance) marks acceptance, or a willingness to transact at lower prices, after an earlier liquidation. 

We’re carrying forward the overhead supply; the 20- and 50-day simple moving averages, as well as the anchored volume-weighted average prices (VWAP), north of the $4,425.00 untested point of control (VPOC), are some key dynamic levels that must be taken to change the tone. 

Balance (Two-Timeframe Or Bracket) Is The Status Quo: Rotational trade that denotes current prices offer favorable entry and exit. Balance-areas make it easy to spot a change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend). 

Modus operandi is responsive trade (i.e., fade the edges), rather than initiative trade (i.e., play the break).

Further, according to JPMorgan Chase & Co’s (NYSE: JPM) Marko Kolanovic, the aforementioned trade is happening in the context of “technical selling flows (CTAs and option hedgers) in an environment of poor liquidity, and overreaction of discretionary traders to perceived risks.” 

Despite these conditions, Kolanovic anticipates a continued move higher in the equity market as the COVID-19 delta wave fades and companies beat third-quarter earnings expectations.

“We remain constructive on risk assets and last week upgraded our S&P 500 price target, given expectations of a reacceleration in activity as the delta wave fades and better than expected earnings,” Kolanovic added. “Risks are well-flagged and priced in, with stock multiples back at post-pandemic lows for many reopening/recovery exposures; we look for Cyclicals to resume leadership as delta inflects. We expect the S&P 500 to reach 4,700 by the end of 2021 and to surpass 5,000 next year.”

In terms of positioning, SpotGamma data suggests the S&P 500 is at an important junction ahead of the Federal Open Market Committee statement and news conference, later today; a directional move higher (lower) could set the index up for lower (higher) volatility.

Graphic: Based on an analysis of positioning in the options market, SpotGamma plots key levels to be aware of; presently, the S&P 500 is in short-gamma territory. Gamma is the sensitivity of an option to changes in the underlying price. Those that take the other side and warehouse these risks hedge their exposure 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.

Moreover, for today, participants may make use of the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,365.25 LVNode pivot puts in play the $4,393.75 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,425.00 untested point of control (VPOC) and $4,481.75 HVNode, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,365.25 LVNode pivot puts in play the $4,346.75 HVNode. Initiative trade beyond the HVNode could reach as low as the $4,294.00 regular trade low (RTH Low) 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

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.

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.

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.

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

News And Analysis

A modest shift in retail spending amid variant uncertainty.

The gobal economic recovery is hitting some speed limits.

Areas of emerging markets present investor opportunities.

The Fed debate on tapering just became a lot more tricky.

House passes debt limit suspension, setting up standoffs.

Democrats pursue the debt move with emergency option.

Evergrande is not another Lehman. Here is the bad news.

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 September 17, 2021

Market Commentary

Equity index futures trade sideways to lower.

  • Fed could hint at a stimulus taper.
  • Ahead: UoM consumer sentiment.
  • OPEX and a potential for volatility.

What Happened: U.S. stock index futures auctioned sideways to lower ahead of quadruple witching and news the Federal Reserve may hint at scaling back asset purchases next week. 

Ahead is data on University of Michigan consumer sentiment (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, 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, on weak intraday breadth and strong market liquidity metrics, the worst-case outcome occurred, evidenced by trade back toward the market’s most recent perception of value, the convergence of the $4,437.75 micro-composite point of control (MCPOC) and an anchored volume-weighted average price (VWAP).

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.

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

We’re carrying forward the presence of minimal excess at Wednesday’s regular trade low (RTH Low), after a test of a point of control (POC) and 50-day simple moving average (i.e., two visual levels likely paid attention to by short-term, technically-driven market participants who generally are unable to defend retests).

Balance-Break Scenarios Potentially In Play: A change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend) may occur.

Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area. Rejection (i.e., return inside of balance) portends a move to the opposite end of the balance.

Further, the aforementioned trade is happening in the context of peak growth and a moderation in the economic recovery, heightened valuations, the prospects of stimulus reduction, as well as non-seasonally aligned flows, impactful options market dynamics, divergent sentiment, and fears of a mid-cycle transition.

Graphic: @pat_hennessy breaks down returns for the S&P 500, categorized by the week relative to OPEX. Based on his analysis, Pat sees that the “2 weeks prior to OPEX (e.g., 7/30/21 to 8/6/21 in this late-cycle) [have] been extremely bullish,” while “OPEX week returns peaked in 2016 and have trended lower since.”

According to SqueezeMetrics, coming into Thursday’s session, the steepness of the GammaVol (GXV) curve suggested there was no more risk to the upside than there was to the downside; “SPX upside needs a bunch of bought puts to throw on the bonfire. It would be bullish for SPX to have people buying SPX puts,” and that hasn’t happened yet.

Thereafter, the index crept back into range, past $4,450.00, before responding higher, into the close ahead of quadruple witching, during which SpotGamma believes participants are likely to “see a big chunk of SPX options expire on the open, and the balance of index/etf/stocks expire on the close. This should lead to a decent amount of volatility Friday and Monday ahead of the FOMC.”

Moreover, for today, given an increased potential for 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 $4,481.75 high volume area (HVNode) puts in play the $4,510.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,526.25 HVNode and $4,550.00 overnight high (ONH).

In the worst case, the S&P 500 trades lower; activity below the $4,481.75 HVNode puts in play the $4,437.75 MCPOC. Initiative trade beyond the MCPOC could reach as low as the $4,425.25 minimal excess low and $4,393.75, another micro-composite point of control (MCPOC).

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.

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

News And Analysis

Fed seen announcing bond taper in November, rate liftoff in 2023.

Invesco could merge with a State Street asset-management unit.

Food and Drug Administration weighing COVID-19 booster shots.

S&P analysis on Canada growth prospects in the coming decade.

Rising transportation expenses are companies’ big inflation hurdle

Wall Street influencers are making $500,000, above even bankers.

GM plans to idle factories longer amid problematic chip shortages.

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 September 16, 2021

Market Commentary

Equity index futures trade sideways to lower with commodities and yields.

  • Equity indices falling; SPX above 50-day.
  • Ahead are claims, retail sales, and more.
  • Positioning risks mount case for volatility.

What Happened: After a break higher, yesterday, U.S. stock index futures auctioned sideways to lower overnight as participants positioned themselves for an options expiry and upcoming data dumps.

Ahead is data on jobless claims (8:30 AM ET), retail sales (8:30 AM ET), Philadelphia Fed manufacturing survey (8:30 AM ET), and business inventories (10:00 AM ET).

Graphic updated 6:40 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 6:40 AM ET, 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, on strong intraday breadth and middling market liquidity metrics, the best case outcome occurred, evidenced by the S&P 500 closing the session on a spike higher, away from value.

Spike Rules In Play: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike). 
Graphic: Divergent delta (i.e., non-committed buying as measured by volume delta or buying and selling power as calculated by the difference in volume traded at the bid and offer) in SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index, via Bookmap. The readings are supportive of responsive trade or balance (i.e., rotational trade that suggests current prices offer favorable entry and exit).

This is significant because of rejection, or a willingness not to transact at lower prices. We’re carrying forward the presence of minimal excess at Wednesday’s regular trade low (RTH Low), after a test of a prior untested point of control (VPOC) and 50-day simple moving average (i.e., two visual levels likely paid attention to by short-term, technically-driven market participants who generally are unable to defend retests).

Graphic: S&P 500 rotates between the 20- and 50-day simple moving average. Thus far, stronger sellers have not stepped up.

Further, the aforementioned trade is happening in the context of peak growth and a moderation in the economic recovery, heightened valuations, the prospects of stimulus reduction, as well as non-seasonally aligned inflows, impactful options market dynamics, divergent sentiment, and fears of a mid-cycle transition.

Graphic: @pat_hennessy breaks down returns for the S&P 500, categorized by the week relative to OPEX. Based on his analysis, Pat sees that the “2 weeks prior to OPEX (e.g., 7/30/21 to 8/6/21 in this late-cycle) [have] been extremely bullish,” while “OPEX week returns peaked in 2016 and have trended lower since.”

According to SqueezeMetrics, the steepness of the GammaVol (GXV) curve suggests there is no more risk to the upside than there is to the downside; “SPX upside needs a bunch of bought puts to throw on the bonfire. It would be bullish for SPX to have people buying SPX puts,” and that hasn’t happened yet.

In other words, the graphic “means that movement from 4450 to 4500 is very easy, … [a]nd now that we’re at 4480, it’s slippery back down to 4450.”

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,481.75 high volume area (HVNode) puts in play the $4,510.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,526.25 HVNode and $4,550.00 overnight high (ONH).

In the worst case, the S&P 500 trades lower; activity below the $4,481.75 HVNode puts in play the $4,449.50 spike base. Initiative trade beyond the spike base could reach as low as the $4,425.25 minimal excess low and $4,393.75 micro-composite point of control (MCPOC).

To note, the $4,481.75 HVNode corresponds with two anchored Volume Weighted Average Price (VWAP) levels, a metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

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.

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.

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.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 7:25 AM ET.

News And Analysis

How ‘OpEx’ is shaking up the third week of the month.

U.S. political noise to intensify but have limited impact.

Though COVID cases are falling, the deaths are rising.

Biden’s economic plan at risk of delays amid squabble.

China Evergrande onshore bond trading is suspended.

The Coinbase spat with SEC ups ante in a crypto fight.

The foreclosure rate at its lowest in over two decades.

Talking Options Greeks: Everything you need to know.

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 September 9, 2021

Editor’s Note: Daily market commentaries to pause until Thursday, September 16, 2021, due to travel commitments. A weekend commentary will be in your inbox earlier this week.

All the best, 

Renato

Market Commentary

Equity index futures trade lower with yields, dollar, and bitcoin. Most commodities were green.

  • Narratives around slower recovery rising.
  • Ahead is jobless claims data, Fed speak.
  • Positioning risks mounting case for lower.

What Happened: U.S. stock index futures auctioned lower overnight alongside narratives surrounding a slowed economic recovery and stimulus reductions. 

Ahead is data on jobless claims (8:30 AM ET), as well as Fed-speak by Bowman (1:00 PM ET) and Williams (2:00 PM 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, 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, on weak intraday breadth and divergent market liquidity metrics, the best case outcome occurred, evidenced by sideways trade at the $4,510.00 pivot, the low end of a recent consolidation (i.e., balance) area. 

Balance (Two-Timeframe Or Bracket): Rotational trade that denotes current prices offer favorable entry and exit. Balance-areas make it easy to spot a change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend). 

Modus operandi is responsive trade (i.e., fade the edges), rather than initiative trade (i.e., play the break).

To note, participants had a tough time separating value and expanding range lower.

This is evidenced by the minimal excess at yesterday’s regular trade low (RTH Low), coupled with an overnight response at the 20-day simple moving average (i.e., a visual level likely paid attention to by short-term, technically-driven market participants). 

In other words, we’re carrying forward the difficulty participants had, in days prior, to moving prices out and away from balance. The path of least resistance – at least in prior trade – was not down; stronger sellers are not yet on board.

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.

Value-Area Placement: Perception of value unchanged if value overlapping. Perception of value has changed if value not overlapping (i.e., outside day). Delay action in the former case.
Graphic: 30-minute profile chart of the Micro E-mini S&P 500 Futures and market liquidity, via Bookmap, for the SPDR S&P 500 ETF Trust (NYSE: SPY). Notice the volume delta (CVD) or buying and selling power as calculated by the difference in volume traded at the bid and offer.
Balance-Break Scenarios In Play: A change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend) has occurred.

Though we expect sideways to lower trade – for the time being – we monitor for rejection (i.e., return inside of balance) which portends a move higher, to the opposite end of the balance.

Further, the aforementioned trade is happening in the context of peak growth and a moderation in the economic recovery, as well as non-seasonally aligned inflows, impactful options market dynamics, divergent sentiment, and fears of a mid-cycle transition.

The implications of these themes on price are contradictory

To elaborate, Morgan Stanley (NYSE: MS), Citigroup Inc (NYSE: C), and Goldman Sachs Group Inc (NYSE: GS) cautioned investors about equity outlooks. Of concern, in particular, is a rise in cases of the delta variant, tensions between inflation expectations and yields, as well as seasonality. 

Among other risks, as SqueezeMetrics summarizes, “[p]eople pretty much stopped buying S&P 500 puts [last] week. At the same time, people are overexposed to changes in VIX, and will be hurt more than usual if VIX starts moving up. Historically, this means SPX down, VIX up.”

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,495.00 high volume area (HVNode) pivot puts in play the $4,510.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,526.25 HVNode and $4,550.00 overnight high (ONH).

In the worst case, the S&P 500 trades lower; activity below the $4,495.00 HVNode puts in play the $4,481.75 HVNode. Initiative trade beyond the $4,481.75 HVNode could reach as low as the $4,454.25 LVNode and $4,427.00 untested point of control (VPOC).

Note the developing volume-weighted average price (VWAP) pinch. VWAP is 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. We look to buy above a flat/rising VWAP pinch. Sell below a flat/declining VWAP pinch.

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.

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 updated 6:30 AM ET. 

News And Analysis

Traders rush to dump China tech stocks as gaming targeted again.

Decision Guide: The ECB counts risks in setting bond-buying pace.

Aluminum notches fresh 13-year high on supply woes and demand.

China’s zero-COVID approach will aggravate rising corporate risks.

Fauci: We don’t even have “modestly good control” over COVID-19.

Coinbase threat shows there’s a new cryptocurrency sheriff in town.

White House eyeing increased hacking around the coming holidays.

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 26, 2021

Market Commentary

Equity index futures trade sideways to lower. Yields lead lower.

  • China tension, infrastructure, COVID talk.
  • Ahead are new home sales and earnings.
  • S&P plays with a potential auction failure.

What Happened: U.S. stock index futures auctioned sideways to lower overnight alongside narratives surrounding a U.S. and China stalemate, progress on infrastructure, as well as the spread of COVID-19 variants.

On COVID-19, Nordea analysts conclude: “Delta is a cause for concern around the globe, but judging from the case to hospitalization ratio, it seems as if the crisis is already mostly over. Central banks will conclude the same soon, even if the initial reaction to Delta is clearly dovish.”

Moreover, ahead is data on new home sales, as well as earnings reports by Tesla Inc (NASDAQ: TSLA) and Lockheed Martin Corporation (NYSE: LMT), among other companies.

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, 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 Friday’s trade, the best case outcome occurred, evidenced by trade above $4,384.50, a prior all-time high (ATH) and balance-area high (BAH).

Balance (Two-Timeframe Or Bracket): Rotational trade in which current prices offer favorable entry and exit. Balance-areas make it easy to spot a change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).

To note, Friday’s trade happened on positive, albeit weaker breadth. This is in comparison to Thursday’s session during which breadth, measured by the Advance/Decline indicator, was negative and not supportive of an advance in price.

A key thing to watch for is acceptance (i.e., more than 1-hour of trade) and whether an auction failure transpires.

If initiative buyers were to further expand the range, then all is well. However, in a failure to move higher, confirmed by trade below Friday’s $4,372.50 regular trade low (RTH Low), an auction failure may foreshadow a liquidation break.

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

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,384.50 pivot puts in play the $4,398.50 high volume area (HVNode). Initiative trade beyond the $4,398.50 HVNode could reach as high as the $4,407.75 ATH and $4,428.25 Fibonacci-derived target.

In the worst case, the S&P 500 trades lower; activity below the $4,384.50 pivot puts in play a potential auction failure confirmed by trade below the $4,372.50 RTH Low. Initiative trade beyond the RTH Low may reach as low as the $4,353.00 untested Point of Control (VPOC) and $4,325.75 LVNode.

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

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 updated 6:30 AM ET.

News And Analysis

China stocks tumble in panic selling amid a broad crackdown.

U.S. infrastructure talks near finish as Senators face pressure.

U.S. real yields fell to a record low alongside growth concerns.

The COVID-19 coronavirus crisis is officially over (in the West).

U.S. home price appreciation to moderate as supply increases.

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.