Tag: RUT – Cash Russell 2000 Index

Categories
Commentary

Daily Brief For May 12, 2021

Market Commentary

Index futures in balance.

  • Tugging as sectors push and pull.
  • Ahead: Consumer prices, inflation.
  • Indices settle, position for resolve.

What Happened: After responsive buying the day prior, U.S. stock index futures auctioned lower overnight, ahead of data on inflation.

Graphic updated at 6:35 AM EST.

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 worst-case outcome occurred, evidenced by the initiative trade down to the $4,110.50 minimal excess low. Thereafter, responsive buying brought the S&P 500 back in range. Later, participants found it most favorable to transact at last Tuesday’s POC, a development that suggests visually-driven technical traders may be out in full force.

Initiative Selling (Buying): Selling (buying) within or below (above) the previous day’s value area.

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.

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

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

Further, this week’s early dip comes ahead of inflation figures that will provide clarity on emerging price pressures. Generally speaking, inflation and rates move inverse to each other. Low rates stimulate demand for loans (i.e., borrowing money more attractive). With the rapid recovery, though, market participants are fearful that rates may have to rise to protect the economy from overheating.

That’s pretty significant.

Higher rates may reduce the present value of future earnings, making stocks, especially those that are high growth, less attractive. To note, however, rates haven’t budged much since March. Rates on the 10 Year T-Note sit well below their March high.

That said, here is a quote to sum current conditions: “For an economy coming out of a pandemic, normal rules don’t apply,” said Matthew Cady, an investment strategist at Brooks Macdonald. “For broad sustained inflation you really need to see much tighter labor markets, and the bottom line is that the CPI out-turn due this week is very unlikely to change that picture.”

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 $4,141.00 POC targets first the $4,163.00 POC and then the $4,177.25 composite high volume (HVNode) pivot. Initiative trade beyond the pivot could reach as high as the $4,224.75 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.

In the worst case, the S&P 500 trades sideways or lower; activity below the $4,141.00 POC targets first the $4,103.00 excess low. Thereafter, if no response, participants may look for responses at the $4,128.00 and $4,093.00 POCs.

At this juncture, it pays not to be involved; the risk-to-reward of establishing new swing positions, in a tight trading range, is poor. Responsive trade is the course of action. Only after trading beyond the HVNode pivot, or excess low, may participants have the conviction to participate in initiative trades.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Dow is the strongest of the four. The Nasdaq is beginning to strengthen, relative to its peers. 
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 11. Activity in the options market was primarily concentrated in very short-dated tenors, in strikes as low as $396.00, which corresponds with ~$4,050.00 in the cash-settled S&P 500 Index (INDEX: SPX). Despite some size bets on both sides of the market, a short duration suggests an overall lack of commitment. 
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX), Tuesday. Exposure was concentrated in both the May and June monthly expiries.

News And Analysis

Commodities | Colonial faces deadline to decide on hacked pipeline restart. (BBG)

Politics | Israel and Hamas escalate deadly strikes as the U.S. calls for calm. (BBG)

Markets | SPAC fees to support banks through 2022 even as deals dry up. (BBG)

Markets | COVID-19 concerns, chip sell-off roil the Taiwanese stock market. (WSJ)

Markets | SEC warning over bitcoin futures risks in mutual fund investments. (BBG)

Markets | A higher U.S. corporate tax rate is not a key credit risk driver. (Fitch)

What People Are Saying

Innovation And Emerging Trends

Economy | Housing-market surge is making the cheapest homes the hottest. (WSJ)

Markets | Media account Litquidity Capital is the Meme King of Wall Street. (VOX)

FinTech | eBay joined the NFT frenzy, will allow sale of NFTs on its platform. (REU)

About

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

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

 Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For May 10, 2021

Market Commentary

Index futures in balance.

  • Inflation talk; reflation back in play.
  • Ahead is Fed speak and earnings.
  • Indices divergent. Expecting chop.

What Happened: U.S. stock index futures were divergent. 

The S&P 500 and Dow Jones Industrial Average discovered higher prices while the Nasdaq 100 and Russell 2000 backed off into the prior range.

Graphic updated at 7:25 AM EST.

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

Adding, during the prior session’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,210.75 rally-high, which is significant because that was the highest mark achieved during a prior failed break from balance.

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

Beyond that snippet of fundamental information, we move to what matters right now, technically. 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 $4,238.00 overnight high (ONH) puts in play the $4,266.50 Fibonacci-derived price extension.

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

In the worst case, the S&P 500 trades lower; activity below the $4,216.00 low-volume area (LVNode) puts in play the $4,210.75 rally-high. Thereafter, if lower, the HVNodes at $4,199.25, $4,190.75, and $4,177.25 (a major pivot) all become in play.

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). The Dow is the strongest of the four. The Nasdaq is the weakest.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week ending May 7, 2021. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $404.00, which corresponds with $4,030.00 in the cash-settled S&P 500 Index (INDEX: SPX).

News And Analysis

Commodities | Gasoline futures rise after cyberattack shuts down a vital pipeline. (CNBC)

Recovery | Dr. Fauci says masks could become seasonal after COVID pandemic. (CNBC)

Economy | Euro zone investor morale rises to the highest level since March 2018. (REU)

Markets | Second-biggest cryptocurrency ethereum breaks $4,000 to hit a record. (REU)

Economy | Consumer on one of the healthiest footings in decades, post-COVID-19. (BLK)

What People Are Saying

Innovation And Emerging Trends

Business | UBS dangles $40,000 bonuses to slow junior banker defections. (BBG)

FinTech | Signalling privacy is coming to DeFi, Sienna Network raises $11.2M. (TC)

Trade | Japan mulling alternatives to Suez Canal after the Ever Given shock. (AJ)

ESG | Blackrock insider explains how the ESG investing ‘fantasy’ is distracting. (FP)

Markets | Nasdaq gets the green light from SEC for volatility index options. (TTN)

About

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

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

 Disclaimer

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

Subscribe
Categories
Commentary

Weekly Brief For May 9, 2021

Market Commentary

Key Takeaways: Index futures in price discovery.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What To Expect: In the coming sessions, participants will want to focus their attention on where the S&P 500 trades in relation to the balance area it just broke from.

That said, participants can trade from the following frameworks.

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

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

Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week ending May 7, 2021. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $404.00, which corresponds with $4,030.00 in the cash-settled S&P 500 Index (INDEX: SPX).

News And Analysis

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

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

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

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

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

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

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

What People Are Saying

https://twitter.com/LanceBeggs/status/1391362320756973568?s=20

Innovation And Emerging Trends

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

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

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

About

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

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

 Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For May 6, 2021

Market Commentary

Index futures in balance.

  • Recovery evolves, growth picked up.
  • Ahead: Claims, Nonfarm Productivity.
  • Divergences appear, flow is turning.
  • S&P 500 $4,178 a major pivot point.

What Happened: U.S. stock index futures auctioned sideways-to-higher overnight ahead of impactful fundamental releases, like data on Initial Jobless Claims, and a preliminary report on Nonfarm Productivity.

Graphic updated 7:40 AM AM EST.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by responsive (sideways) trade just below the $4,178.00 high volume area (HVNode), which is significant because that level denotes a pivot point on the composite profile (i.e., above = bullish, below = caution, the potential for lower).

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

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

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

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above $4,177.25 targets the $4,189.00 POC. Initiative trade beyond the POC could reach as high as the $4,200.00 HVNode and $4,210.75 minimal excess rally high.

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

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

In the worst case, the S&P 500 trades lower; activity below the $4,151.75 low volume area (LVNode) puts in play the $4,141.00 POC. Below the $4,141.00 POC, participants ought to become cautious. A break of $4,110.50 puts the S&P 500 within a composite low-volume area; trade ought to be violent as participants look to the next high-volume area for favorable opportunities to enter (new longs) and exit (close shorts).

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Noting the $4,178.00 pivot.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). The Dow is the strongest of the four. The Nasdaq is the weakest.
Graphic: SHIFT search suggests participants are still not as inclined to add call-side exposure, through the month of May, in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: Noting a continuation lower in the % of S&P 500 companies trading above their 100-day simple moving average.

News And Analysis

Markets | Gensler raises concern about the market influence of Citadel. (FT)

Markets | Uber leans on delivery business with ridesharing demand flat. (FT)

Housing | Mortgage servicer complaints soar as Americans can’t pay. (MW)

Markets | CMBS loan defaults marked a peak in 2020; retail vulnerable. (Fitch)

Economy | BoE sees U.K. growth surging over 7% this year on vaccine. (CNBC)

Economy | Norwegian Cruise: Bookings move past pre-pandemic levels. (REU)

Markets | Jeff Bezos sold nearly $2B worth of Amazon shares this week. (CNBC)

Markets | JPMorgan looks to move another $200B in assets post-Brexit. (BBG)

Markets | SocGen cites equity trading activity as it smashes expectations. (CNBC)

COVID | Moderna says early data shows vaccine 96% effective in teens. (CNBC)

Markets | Credit Suisse to keep limits on risk-weighted assets and leverage. (REU)

What People Are Saying

Innovation And Emerging Trends

Crypto | Crypto trading volumes boom as activity cools on stock markets. (FT)

Crypto | Metromile is looking to accept premiums and pay claims in bitcoin. (BZ)

Space | SpaceX Starship prototype SN15 successfully lands after testing. (CNBC)

About

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

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

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For May 5, 2021

Market Commentary

Index futures attempt to exit balance.

  • Yellen walks back rate comment.
  • Ahead is employment, ISM data.
  • Divergence grew, low conviction.

What Happened: U.S. stock index futures auctioned higher overnight as Treasury Secretary Janet Yellen clarified her comments on interest rates. 

The Secretary’s note that rates may “have to rise somewhat” to protect the economy from overheating weighed on the market. Most hurt was the Nasdaq 100; higher rates may reduce the present value of future earnings, making innovation-driven growth stocks less attractive.

Graphic updated 8:00 AM EST.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by initiative trade below the $4,167.25 low, which is significant because it was a level that participants, for numerous sessions, supported.

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

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above $4,178.00 high-volume area (HVNode) targets the $4,189.00 POC. Initiative trade beyond the POC could reach as high as the $4,200.00 HVNode and $4,210.75 minimal excess high. 

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

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

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

In the worst case, the S&P 500 trades lower; activity below the $4,178.00 HVNode puts in play the prior day’s POC near $4,141.00 and the $4,110.50 minimal excess low. Trade below $4,110.50 puts in play the $4,093.00 POC, $4,082.75 HVNode, and $4,067.00 POC.

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: 4-hour profile chart of the Micro E-mini S&P 500 Futures. Noting the $4,178.00 pivot.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 4, 2021. Notable activity in the options market was primarily concentrated on the call-side, in short-dated tenors, in strikes at and around $414.00, which corresponds with $4,140.00, or so, in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: SHIFT search suggests participants are still not as inclined to add call-side exposure, through the month of May, in the SPDR S&P 500 ETF Trust (NYSE: SPY).

News And Analysis

Economy | Biden’s Fed choices add uncertainty for inflation-wary investors. (BBG)

Economy | Post-COVID U.S. births drop to the lowest level since the 1970s. (BBG)

Commodities | IEA: Governments should consider stockpiling battery metals. (BBG)

Markets | Facing chips shortage, Biden may shelve blunt tool used in COVID. (REU)

Economy | Private payrolls show big gain in April but still short of expectations. (CNBC)

Markets | Commodities jump to highest since 2011 on COVID-19 rebound. (BBG)

Economy | Weekly mortgage demand stalls as rates rise, competition hurts. (CNBC)

What People Are Saying

Innovation And Emerging Trends

FinTech | CME exchange plans to permanently close physical trading pits. (REU)

FinTech | Robinhood CEO holds up crypto exchanges as model for settlement. (TB)

Venture | Proposed changes to capital gains could affect VCs differently. (CB)

Crypto | S&P Dow Jones launches series of cryptocurrency benchmarks. (MM)

FinTech | Berkshire Hathaway’s stock price too much for Nasdaq computers. (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, Canadian businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others, afforded him the perspective and know-how very few come by.

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

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For May 4, 2021

Market Commentary

Index futures attempt to exit balance.

  • Global reopening, vaccinations rising.
  • Ahead: Vehicle Sales, Factory orders.
  • Markets balance, position for resolve.

What Happened: U.S. stock index futures rejected a breakout attempt and explored lower prices, overnight.

Ahead are earnings, data on trade, factory orders, durable goods, and Fed speak.

Graphic updated 7:30 AM ET.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by trade below the $4,186.75 balance boundary, which is significant because it denoted a clear, visual break-out point.

Adding to our narrative, according to Joseph Fahmy, Investment Advisory Representative at Zor Capital, from here on out, either (1) growth stocks stabilize and move higher, or (2) weak breadth pulls down the overall market. 

Supporting this belief is a weak reaction to earnings, interest rate volatility, tax selling, as well as stretched sentiment.

Still, the market is in a technically bullish position. A break below the S&P 500’s minimal excess low at $4,110.50 would suggest a change in conditions and the potential for lower.

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.

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

In the best case, the S&P 500 trades sideways or higher; crossing back into the prior day’s trading range, marked by the $4,181.00 regular-trade low (RTH Low), targets the $4,189.00 POC. Initiative trade beyond the POC could reach as high as the $4,194.25 low volume area (LVNode), and then the $4,205 POC. 

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.

Initiative Buying (Selling): Buying (selling) within or above the previous day’s value area.

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

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

In the worst case, the S&P 500 trades lower; activity below $4,167.25 could reach as low as the $4,153.25 and $4,137.25 high volume areas (HVNodes).

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 3. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $413.00, which corresponds with $4,130.00 in the cash-settled S&P 500 Index (INDEX: SPX).

News And Analysis

Politics | Biden open to options on spending as Congress takes over. (BBG)

Economy | Near-term volatility in inflation as economic restart progresses. (BLK)

Markets | Robinhood raked in $331 million from clients’ trading activity. (CNBC)

Economy | Metrics show strong U.S. business sentiment hit a snag in April. (Axios)

Economy | Treasury quadruples borrowing estimates to pay for stimulus. (BBG)

Trade | Truckers expect the U.S. transport capacity crunch to persist. (WSJ)

Banking | Cash-rich U.S. banks moving to reduce corporate deposits. (FT)

Commodities | Broad commodities price boom amplifies ‘supercycle’ talk. (FT)

Economy | Yellen to appoint Senior Fed official to run top bank regulator. (WSJ)

What People Are Saying

Innovation And Emerging Trends

Media | Why Verizon sold AOL and Yahoo for 1% of their peak valuation. (Axios)

FinTech | Mastercard adds 6 startups to Start Path accelerator program. (CT)

FinTech | Canada-based Wealthsimple raises $610M at a $4B valuation. (TC)

FinTech | Founder at Miami-based accelerator talks exits, #MiamiTech. (BZ)

About

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

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

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For May 3, 2021

Market Commentary

Index futures in balance.

  • Global markets quiet on holiday.
  • Ahead: Fed speak, employment.
  • Potential for directional resolve.

What Happened: U.S. stock index futures auctioned higher overnight. The S&P 500, Russell 2000, and Dow Jones Industrial Average are relatively strong compared to the Nasdaq 100.

Aside from earnings, key events this week include a manufacturing data release, as well as talks by Fed Chair Powell, Chicago Fed President Charles Evans, and Cleveland Fed’s Loretta Mester. The Bank of England and Bank of Australia will provide clarity on their monetary policies. Employment data will come Friday. 

Graphic updated 7:20 AM EST.

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

Balance-Break + Gap Scenarios: Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area. This can come in the form of sideways trade or range expansion.

Gaps ought to fill quickly. Should they not, that’s a signal of strength; do not fade. Leaving value behind on a gap-fill or failing to fill a gap (i.e., remaining outside of the prior session’s range) is a go-with indicator.

Auctioning and spending at least 1-hour of trade back in the prior range suggests a lack of conviction; in such a case, do not follow the direction of the most recent initiative activity.

Adding, during Friday’s regular trade, the best case outcome occurred, evidenced by sideways trade above $4,168.00, which is significant because it marked a prior session’s regular-trade low (RTH Low).

This attempt to move from balance comes after weeks of mechanical trade in the range between $4,186.75 and $4,110.50. It is likely that, given last week’s heavy economic and earnings calendar, participants have more information to initiate a directional move. 

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above $4,197.25 low-volume area (LVNode) targets the $4,205.00 VPOC. Initiative trade beyond the VPOC could reach as high as the $4,210.75 regular-trade high (RTH High), and then, the Fibonacci cluster between $4,222.50-4,237.50. 

Volume Areas: A structurally sound market will build on past areas of high-volume. Should the market trend for long periods of time, it will lack sound structure (identified as a low-volume area which denotes directional conviction and ought to offer support on any test). If participants were to auction and find acceptance into areas of prior low-volume, then future discovery ought to be volatile and quick as participants look to areas of high-volume for favorable entry or exit.

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

In the worst case, the S&P 500 trades lower; activity below the $4,186.75 balance-area boundary targets the $4,167.25 RTH Low. Thereafter, if lower, participants should look for responses at the $4,132.00 value-area low (VAL) and the $4,110.50 minimal excess low.

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.

News And Analysis

Travel | EU pushes end to travel restrictions for vaccinated tourists. (BBG)

Markets | Ether hits $3,000 as Bitcoin’s crypto dominance declines. (BBG)

Economy | Warren Buffett sees inflation, even if Jerome Powell doesn’t. (Axios)

Markets | Demand surges for New York Fed’s reverse repo facility. (KFGO)

Markets | Abel is likely successor at Berkshire Buffett tells CNBC. (BBG)

Markets | Robinhood’s core business more than tripled in first quarter. (BBG)

Trade | Intel CEO says chip shortage will persist for couple years. (BBG)

Recovery | COVID-19 cases fall sharply in U.S., vaccinations rise. (CNBC)

Economy | Bank of Canada tapers asset purchases, while others wait. (Moody’s)

What People Are Saying

Innovation And Emerging Trends

Trading | London Metals Exchange to announce open outcry decision. (REU)

FinTech | Fintech groups form as industry scrutiny ramps on Capitol Hill. (S&P)

FinTech | Robinhood deepens ties with JPM by using bank for transfers. (CNBC)

FinTech | Digital Dollar Project to launch five U.S. central bank cryptos. (REU)

Travel | Airport security app Clear looks to score with vaccine passport. (REU)

FinTech | TradeTech INX estimates $125M raised in token, equity offer. (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, Canadian businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others, afforded him the perspective and know-how very few come by.

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

Disclaimer

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

Subscribe
Categories
Commentary

Daily Brief For April 30, 2021

Market Commentary

Index futures in balance.

  • Fundamentals great, risks nearing.
  • Earnings, FOMC pass. What now?
  • May see chop or responsive trade.

What Happened: U.S. stock index futures auctioned lower overnight after a string of positive fundamental developments.

Graphic updated 6:20 AM EST.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM EST) 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 worst-case outcome occurred, evidenced by initiative trade below the $4,186.75 ledge (also the balance-area high, or BAH). This is significant because it suggests participants did not have the conviction to explore higher prices beyond balance (a dynamic that’s caused by participants searching for more information to base their next move). 

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).

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).

As stated in yesterday’s balance-break and gap scenarios, acceptance was key in confirming the higher prices discovered during Thursday’s pre-market trade. Participants failed to find acceptance given the S&P 500’s move into the prior range. As a result, odds favor (1) sideways or (2) lower trade, as low as the balance-area low (BAL) $4,110.50 (a minimal excess low, also). 

All of these nuances — while prices are near all-time highs — are happening in the context of optimistic comments from policy leadership and blow-out earnings.

“All evidence still points to continued support from both fiscal and monetary policy against a backdrop of accelerating corporate earnings,” said Mark Haefele, UBS Global Wealth Management’s chief investment officer. “This reinforces our view that markets can advance further, with cyclical parts of the market — such as financials, energy, and value stocks — likely to benefit most from the global upswing.”

To put it simply, one could say that the equity market is priced to perfection at this stage of the recovery.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,186.75 ledge targets the $4,210.75 minimal-excess high. Initiative trade beyond $4,210.75 could reach as high as $4,228.00 and $4,263.00. In the worst case, the S&P 500 trades lower; activity below the $4,168.00 RTH low targets the $4,164.25 high-volume area (HVNode). Thereafter, if lower, participants could see a test of the opposing end of the balance, or the $4,110.50 minimal excess low.

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.

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: S&P 500 Index (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Updated 9:30 PM EST.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Updated 9:30 PM EST.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for April 29. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $400.00, which corresponds with $4,200.00 in the cash-settled S&P 500 Index (INDEX: SPX).
Graphic: Noting a move lower in the % of S&P 500 companies trading above their 100-day simple moving average.

News And Analysis

Economy | U.S. recovery gains steam as spending fuels 6.4% GDP growth. (BBG)

Commodities | Surging U.S. crop prices reversing fortunes in rural Iowa. (REU)

Commodities | Cobalt price jump underscores reliance on metal for EV batteries. (FT)

Trade | Why Apple has chips for iPhones while Ford got caught short. (REU)

Markets | Fundamentals support lower volatility, tight corporate bond spreads. (Moody’s)

Economy | China’s factory activity growth slows on supply bottlenecks, demand. (REU)

Housing | Pending home sales rise less than expected, inventory remains tight. (MND)

Economy | Sawmills are selling boards faster than they can cut them. (FP)

Trade | Caterpillar flags supply-chain risks as global recovery boost earnings. (REU)

Commodities | Oil dipping after rallying on signs of rising global fuel demand. (BBG)

Economy | Joe Biden says tax hikes on rich will fund cuts for many more. (BBG)

Economy | How a bout of mild inflation could knock decarbonization plans. (FP)

Economy | The recovery accelerates amid consumer, housing, industrial gains. (S&P)

Markets | Lockdowns worsen India’s fiscal woes fueled by weak auctions. (BBG)

Recovery | COVID-19 surge in Oregon shows fight against virus not over. (BBG)

What People Are Saying

Innovation And Emerging Trends

Events | Discover tomorrow’s solutions to today’s challenges in fintech. (Finovate)

Trading | Nasdaq does a deep dive into dark, off-exchange trading. (NDAQ)

 About

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

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

 Disclaimer

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

Subscribe
Categories
Commentary

Weekly Brief For April 25, 2021

Happy Sunday! Markets were choppy, ending the week unchanged. This came alongside talk of central bank tapering and an evolution in fiscal policy.

The following commentary on U.S. broad market equity indices will discuss what happened, why it matters, what to expect, and how participants can position themselves for the coming week.

But first, here’s a quote from Adam Funds CEO, Mark E. Stoeckle:

“To try to guess that this is the right time to be out of the market, you may as well go to Las Vegas.”

Market Commentary

What Happened: The S&P 500, Nasdaq 100, Russell 2000, and Dow Jones Industrial Average closed the week out basing, pricing in new information for the next directional move.

  • All talk and no action from policy leaders, creators.
  • Ahead: Fed meeting, GDP and Sentiment, earnings.
  • Markets balancing, position for directional resolve.
Updated: 10:30 AM EST

Why It Matters: The sideways action during last week’s trade came after a lengthy run, higher.

The S&P 500, in particular, from its March 4 low, is up nearly 13%.

Moreover, just because something is high, doesn’t mean it must come crashing down. To put this into perspective, here’s a quote from Jeff deGraaf, co-founder at Renaissance Macro Research: “Overbought/oversold conditions are useless without first defining the underlying trend of the market.”

So, with that, in maintaining objectivity, we zoom out and ask a few questions: 

  1. Where are we in relation to the prior week’s range? Overlapping, but slightly higher. 
  2. Is the market’s attempt to go in a certain direction supported? Yes, value, defined by the area where 70% of prior trade (i.e., 1 standard deviation) is conducted, is following price.
  3. Is the technical and fundamental narrative supportive of current prices? Technically, the market is in an extended uptrend, but recent activity suggests a validation of higher prices. Fundamentally, the topics of monetary and fiscal tightening have investors worried.

Now, in determining whether to change equity market exposure, we zoom closer in and analyze the risks at hand. 

The Bank of Canada, ahead of other central banks, in light of increased growth and inflation forecasts, cut its bond-purchase target and suggested an increased potential to hike rates earlier than expected.

This is an interesting development. The Federal Reserve, too, last week announced the U.S. economy would see higher inflation, but Chair Jerome Powell expressed the institution’s commitment to limiting any overshoot.

Why the change in tone? Here’s Janus Henderson’s portfolio manager Jay Sivapalan’s take.

“We’ve got inflated asset prices in equities, house prices, and infrastructure, how do you normalize that? You need revenue growth and you need inflation … [b]ut at some point in the future, growth may need to be traded off for financial stability.”

In simpler terms, with prolonged periods of low interest rates and debt expansion, market participants are incentivized to take risks. This is how destabilizing factors begin to brew.

“The growth of structured products, passive investing, the regulatory standpoint that’s been implemented with Dodd-Frank and dealers needing to hedge off their risk more frequently than not” are all part of a regime change that’s affected the stability of markets, said Sidial Kris Sidial, a former institutional trader and the co-chief investment officer of The Ambrus Group, a volatility arbitrage fund that looks to exploit changing market structure dynamics.

Here’s an image to help visualize some of what Sidial is referring to.

Pictured: Newfound Research unpacks market drivers, implications of liquidity.

Also, this week, the White House expressed its desire to raise the federal capital gains tax (CGT) rate to 43.4% for wealthy individuals. Despite the market selling on the news, all losses were recouped prior to the end of the week. Why? As Goldman Sachs Group (NYSE: GS) sees it, Congress is likely to settle on a more modest increase, less than 30%.

Adding, as Bloomberg’s John Authers notes: “The way the market handled the last major CGT increase, at the end of 2012, is instructive. As it grew clear that higher capital gains taxes were coming, the S&P 500 languished and went sideways for the last few months of the year, closing roughly where it had been in March. Then 2013 turned out to be a great year; stocks started their rally at the beginning of January and never really stopped.”

So, if a CGT hike is already being discounted by the market, given Friday’s rapid recovery — which also has something to do with how participants are positioned, but that conversation is beyond the scope of this commentary — then why are some of the largest exchange-traded funds seeing outflows?

In particular, the Invesco QQQ Trust Series 1 (NASDAQ: QQQ) bled nearly $6 billion over the last week, the worst exodus since the dot-com era of 2000.

Graphic: The advance/decline line (A/D), an indicator of breadth, is diverging from Nasdaq-100 prices, via MarketInOut. This dynamic has not presented itself in other broad market indices this commentary covers. 

One explanation: “With earning season starting to heat up, especially for the tech sector next week, it is likely that the expectations for technology companies may be too high,” said James Pillow, managing director at Moors & Cabot Inc. “It’s early still, but just look where the earnings surprises are coming from: materials, energy, and financials, all about 80% or higher. Money will follow performance — and the performance is coming from those sectors.”

So, in summarizing this section, technically, the market is bullish, supported by a healthy rotation.

Fundamentally, though, clouds are forming. Participants are adding shifts in tone, by policymakers, into their narrative. Should fundamental conditions change markedly, odds of a technical breakdown in momentum increase substantially.

Till then, the market is flashing green lights. Any correction may offer participants favorable entry.

What To Expect: An increased potential to correct in time, rather than price.

In addition, metrics, like market liquidity and speculative derivatives activity, confirm participants’ bullishness and opportunistic hedging ahead of an acceleration in the global restart and a turn in flows, the result of an increasingly apparent shift in consumer preferences, from saving and investing to spending.

Graphic: SHIFT search suggests participants are still not as inclined to add call-side exposure, through the month of May, in the cash-settled S&P 500 Index (INDEX: SPX).

What To Do: In the coming sessions, participants will want to pay attention to where the S&P 500 trades in relation to its $4,186.75-$4,110.50 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 change in the market (i.e., the transition from two-time frame trade, or balance, to one-time frame trade, or trend).

Any activity above (below) the balance-area high suggests participants are interested in discovering higher (lower) prices. Any activity within the balance area suggests participants are looking for more information to base their next move; in such case, responsive buying and selling is the course of action. 

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

Initiative trade below the balance-area low suggests an inclination by participants to revert to the mean and repair some of the poor structure left behind prior discovery. Initiative trade above the balance area puts in play the cluster of price extensions at and above $4,200.00, typical price targets based on Fibonacci principles.

Initiative Buying (Selling): Buying (selling) within or above (below) previous price acceptance.

So, in the best case, the S&P 500 makes an attempt to balance or discover prices as high as $4,300.00. In the worst case, participants look to auction the S&P 500 into prior poor structures and low-volume areas (LVNodes) that ought to offer little-to-no support.

More On Volume Areas: A structurally sound market will build on past areas of high-volume (HVNode). Should the market trend for long periods of time, it will lack sound structure (identified as a low-volume area (LVNode) 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: 1-day candlestick chart of the cash-settled S&P 500 Index (INDEX: SPX). See Micro E-mini S&P 500 Futures profile chart here.

News And Analysis

Politics | Joe Biden will deliver a ‘joint session of Congress’ this week. (ABC)

Market | The Rise of Carry returns; stock buybacks are kicking into gear. (Axios)

Recovery | The end of U.S. mass vaccination coming sooner than later. (BBG)

Commodities | OPEC says NOPEC bill could put U.S. overseas assets at risk. (REU)

Markets | SPAC deals are far below peaks but are still generously valued. (CB)

Economy | The MBA is forecasting record purchase volume this year. (MND)

Banking | Goldman, JPM talk with the U.K. over business travel corridor. (FN)

Climate | Leaking landfill contributes to world’s mystery methane hotspot. (BBG)

Trade | Beijing hopes U.S. companies will push to scrap China tariffs. (BBG)

Economy | Existing home sales suffer second straight monthly decline. (CNBC)

Markets | Taxes and inflation key themes for markets in the week ahead. (CNBC)

What People Are Saying

Innovation And Emerging Trends

FinTech | On blockchain- and smart contract-based financial markets. (FED)

FinTech | U.K. banks speed plans to ax branches, switch to digital focus. (S&P)

Health | What are all those constant video calls doing to your brain? (TC)

FinTech | Participants identify key operational areas for improvement. (TM)

FinTech | Alpaca intros Broker API that lets you build own Robinhood. (BZ)

FinTech | Public.com app connects users with public company leaders. (BZ)

About

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

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

 Disclaimer

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

Subscribe

Cover photo by sklei from Pexels

Categories
Commentary

Market Commentary For The Week Ahead: ‘Fast Moves’

Key Takeaways:

  • U.S. Senate passes a $1.9T relief package.
  • COVID vaccination timeline is sped up.
  • Equities are recipients of $12B in inflows.
  • Treasury yields aren’t at worrisome levels.
  • VIX term structure suggests no real panic.
  • Real GDP growth to be over 6% this year.

What Happened: U.S. stock index futures ended the week mixed.

This came after U.S. non-farm payrolls grew by 379,000, versus a consensus of ~180,000, improvement in sales and manufacturing data, as well as news that COVID-19 coronavirus vaccinations were accelerating.

Dynamics Unpacked: On a relative basis, the Nasdaq-100 is weaker, while the S&P 500, Russell 2000, and Dow Jones Industrial Average are stronger. This push-pull dynamic, in prior sessions, made it hard for participants to resolve directionally, evidenced by volatility.

On Friday, after an attempt by market participants to resolve lower, via a break of consolidation, stock indexes made a vicious rebound.

Why did stock indexes make a sudden reversal? Well, despite indexes being best positioned for sideways or lower trade, technically, near-term downside discovery reached its limit, based on market liquidity metrics and the inventory positioning of participants.

As stated in Friday’s morning commentary, according to SqueezeMetrics, the steepness of the GammaVol (GXV) curve suggested there was more risk to the upside than downside.

More On 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 1: SqueezeMetrics data suggested a near-term turnaround after Thursday’s violent liquidation.

Adding, also, coming into Friday’s session, market liquidity suggested (1) buying pressure was increasing and/or (2) sellers were absorbing resting liquidity (opportunistic buying or short covering into weakness), while speculative options activity was concentrated on the call-side.

In simple terms, one could argue, based on the aforementioned dynamics (e.g., speculative derivatives activity), that participants bought last week’s dip.

Graphic 2: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week ending February 26, 2021. Noting activity in short- and long-dated tenors, near the $380, a strike that corresponds with $3,800.00 in the cash-settled S&P 500 Index (INDEX: SPX).

Important to note, though, is the S&P 500’s long-term trend break, prior to Friday’s dramatic reversal and higher close, as well as Friday’s divergent volume delta in ETFs that track the S&P 500, Nasdaq-100, and Russell 2000.

Graphic 3: Long-term uptrend in the cash-settled S&P 500 Index (INDEX: SPX) was broken.
More On Volume Delta: Buying and selling power as calculated by the difference in volume traded at the bid and offer.
  • QQQ Market Liquidity
  • IWM Market Liquidity
  • SPY Market Liquidity

What To Expect: Directional resolve and volatility, given news that the U.S. Senate, on Saturday, passed President Joe Biden’s $1.9 trillion COVID-19 coronavirus relief plan, as well as the (2) short-gamma (Graphic 4) environment (i.e, volatility is exacerbated due to dealer hedging requirements), as mentioned in the prior section.

Graphic 4: SpotGamma data suggests Nasdaq-100, the weakest index discussed in this commentary, is below the “Short-Gamma” juncture.

What To Do: In the coming sessions, participants will want to pay attention to the VWAP anchored from the $3,959.25 peak, the $3,720.50 minimal excess low, as well as the $3,837.75 high-volume area (HVNode).

Volume-Weighted Average Prices (VWAPs): Metrics 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.

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

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

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

In the best case, the S&P 500 opens and remains above the $3,837.75 volume area. Auctioning above the VWAP anchored from the $3,959.25 peak would suggest buyers, on average, are in control and winning since the February 15 rally high.

In such a case, participants can look to the $3,892.75 HVNode for favorable entry and exit, the $3,934.25 profile ledge, and $3,959.25 overnight rally-high.

More On Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack 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).

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

Any activity below the VWAP anchored from the $3,959.25 peak may leave the $3,837.75 HVNode as an area of supply — offering initiative sellers favorable entry and responsive buyers favorable exit.

In such a case, participants can look to other areas of high-volume (i.e., $3,795.75 and $3,727.75) for favorable entry and exit, as well as the repair of the $3,720.50 minimal excess low.

Graphic 5: Profile overlays on a 65-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Graphic 6: 4-hour chart of the Micro E-mini S&P 500 Futures.

Conclusions: The go/no-go level for next week’s trade is $3,837.75.

Any activity at this level suggests market participants are looking for more information to base their next move. Anything above (below) this level increases the potential for higher (lower). 

Levels Of Interest: $3,837.75 HVNode.

Cover photo by Chris Peeters from Pexels.