Categories
Commentary

Daily Brief For July 21, 2021

Market Commentary

Equity index futures sideways to higher overnight. 

  • Pandemic continues to accelerate.
  • Ahead is oil market data, earnings.
  • Indices sideways as volatility ebbs.

What Happened: U.S. stock index futures auctioned sideways to higher alongside an increased spread of COVID-19 variants, earnings, and tremendous bond market volatility.

The trade comes also as leading indicators for global economic growth show unusually strong readings, according to Merrill, “pointing to one of the strongest economic expansions of the past 70 years.” In line, strategists at JPMorgan Chase & Co (NYSE: JPM) revised higher their year-end S&P 500 price target from $4,400 to $4,600. 

Ahead, participants are looking forward to data on oil market inventory and earnings.

Graphic updated 6:30 AM ET. Sentiment Risk-On if expected /ES open is above the prior day’s range. 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 6:30 AM ET, Wednesday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open on a small gap, just outside of prior-range and -value, suggesting a potential for directional opportunity.

Balance-Break and/or Gap Scenarios: Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area.

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 the prior day’s regular trade, the best case outcome occurred, evidenced by trade above the $4,285.25 micro-composite Point of Control (MCPOC). This is significant because it denotes movement above the fairest price to do business since the June 20 swing low. Now, initiative sellers have a clear line in the sand – $4,285.25 – when it comes to making headway into areas of demand.

Further, the near-vertical price rise wasn’t without a warrant.

After breaking down, the S&P 500 came to a micro-composite LVNode and halted. Thereafter, prices rebounded. Why was this? Stock indexes were positioned for a vicious rebound as near-term downside discovery may have reached a limit, based on market liquidity metrics and the inventory positioning of participants. 

According to SqueezeMetrics, the steepness of the GammaVol (GXV) curve suggested there was more risk to the upside than the downside, at that S&P 500 juncture.

Given this metric, strong breadth, and positive delta, as well as the resolve of a Volume Weighted Average Price (VWAP) pinch, the S&P 500 is positioned for higher.

Graphic: SPDR S&P 500 ETF Trust (NYSE: SPY) market liquidity, via Bookmap. Note the supportive volume delta, a measure of buying and selling power as calculated by the difference in volume traded at the bid and offer.
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.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,334.25 spike base puts in play the $4,343.00 untested Point of Control (VPOC). Initiative trade beyond the VPOC could reach as high as the $4,357.75 low volume area (LVNode) and $4,371.00 VPOC.

In the worst case, the S&P 500 trades lower; activity below the $4,334.25 spike base puts in play the $4,314.75 HVNode. Initiative trade beyond the $4,314.75 HVNode could reach as low as the $4,299.75 HVNode and $4,285.25 micro-composite POC.

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).

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.

News And Analysis

Work-in-progress U.S. infrastructure bill faces test in Senate. (REU)

Housing starts continuing to improve as permits lose ground. (MND)

Nasdaq to spin out market for pre-IPO shares in a bank deal. (WSJ)

Decentralized finance builds on three major waves of bitcoin. (Future)

Startups on a record acquisition spree buying other startups. (CBN)

U.S. and European consumer confidence and spending rise. (Moody’s)

Titan – Fidelity for Millennials – raised $58M Series B round. (CBN)

Survey showing U.S. majority supports more tech regulation. (Axios)

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 20, 2021

Market Commentary

Equity index futures trade higher. Volatility ebbs. 

  • Pandemic, U.S.-China tensions frighten.
  • Ahead: Building permits, housing starts.
  • Stocks, bonds stabilize. Crypto free-falls. 

What Happened: U.S. stock index futures auctioned higher overnight after violent trade the day prior. The volatility comes alongside renewed pandemic fears and geopolitical tensions.

Ahead, participants are looking forward to data on building permits, housing starts, and earnings.

Graphic updated 7:00 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 7:00 AM ET, Tuesday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open inside of prior range, 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 $4,285.25 composite Point of Control (POC). This is significant because it denotes movement below the fairest price to do business since the June 20 swing low. Now, initiative buyers have a clear line in the sand – $4,285.25 – when it comes to making headway into overhead supply.

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, participants observed a rush into Treasuries pushing yields as low as 1.17% on the 10-year note, as well as a bid in the dollar. According to some outlets, there’s evidence the reflation trade is getting unwound. At the same time, coming into the equity market decline, the number of put options sold-to-open saw heightened levels, a potentially destabilizing force as associated hedging forces promote volatility.

With that, yesterday, participants bought calls and sold puts suggesting confidence in the low. 

Nonetheless, the reversal happened at a key technical level leaving behind minimal excess. Cognizant of the aforementioned, participants can trade from the following frameworks. 

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 best case, the S&P 500 trades sideways or higher; activity above the $4,285.25 MCPOC puts in play the $4,299.75 HVNode. Trade beyond the $4,299.75 HVNode could reach as high as the $4,334.25 spike base.

In the worst case, the S&P 500 trades lower; activity below the $4,285.25 MCPOC likely puts in play the $4,247.75 LVNode. Trade beyond the $4,247.75 LVNode could reach as low as the $4,229.00 VPOC and $4,224.25 low volume area (LVNode), the location of a minimal excess low.

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

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

Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.

News And Analysis

Europe the first region to cross 50M COVID cases. (REU)

Companies could be afraid to give bullish outlooks. (CNBC)

Tokyo 2020 chief doesn’t rule out late cancellation. (CNBC)

Port Chief sees U.S. import surge lasting into 2022. (BBG)

Crypto slides with Yellen leading regulatory scrutiny. (FT)

China rejects hacking, accusing the U.S. of spying. (CNBC)

Brussels warns of threat posed by states’ defiance. (FT)

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 19, 2021

Market Commentary

Equity index futures, commodities, and yields are all lower.

  • COVID resurgence, geopolitical tensions.
  • Ahead: Light day with only earnings data.
  • Stock indices are lower; RUT leads move.

What Happened: U.S. stock index futures auctioned lower overnight alongside news of COVID-19 resurgence and escalating tensions between China and NATO allies. 

This trade comes ahead of a relatively light day in terms of releases. Today, participants will only get data on company earnings.

Graphic updated 6:45 AM ET. Sentiment Risk-Off if expected /ES open is below 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 6:45 AM ET, Monday’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 an increased potential for directional opportunity.

Balance-Break and/or Gap Scenarios: Monitor for acceptance (i.e., more than 1-hour of trade) outside of the balance area.

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 the prior day’s regular trade, the worst-case outcome occurred, evidenced by a spike from value.

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).

This comes as Morgan Stanley (NYSE: MS) believes downside risks are compounded by equity and bond positioning, low short interest, and the involvement of systemic strategies which could intensify a sell-off.

Add to that last week’s monthly options expiry (OPEX), participants could be in for a volatile day as the market enters into so-called a short-gamma environment; in such a case, the opposing side of options trades hedge exposure by buying into strength and selling into weakness, exacerbating volatility.

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

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 $4,285.75 micro-composite POC puts in play the $4,297.00 HVNode. Initiative trade beyond the $4,297.00 HVNode could reach as high as the $4,314.75 HVNode and $4,334.25 spike base.

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.

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

In the worst case, the S&P 500 trades lower; activity below $4,285.75 puts in play the $4,273.25 HVNode. Trade beyond the $4,273.25 HVNode could reach as low as the $4,256.75 and $4,239.25 HVNode.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.

News And Analysis

Robinhood aims for up to $35B valuation in a U.S. IPO. (REU)

The CPI has not altered the Fed’s narrative on inflation. (Moody’s)

OPEC+ agrees oil supply boost after new compromise. (REU)

U.S., U.K. allies blame Chinese government for a hack. (BBG)

Infrastructure bill drops tax enforcement, Senator says. (BBG)

Florida leads U.S. in COVID cases amid variant surge. (Axios)

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

Weekly Brief For July 18, 2021

Market Commentary

Key Takeaways: Equity index futures spike lower in their attempt to discover fair prices for two-sided trade.

  • COVID, waning stimulus cloud outlook.
  • Ahead: Housing and employment data.
  • Indices diverge; breadth, inflows lower.

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

The drop wasn’t entirely uncalled for. 

Into the seasonally-aligned price rise led by the Nasdaq 100 and S&P 500, inflows decelerated and breadth weakened

At the same time, a measure of inflation – via the Consumer Price Index (CPI) – rose the largest since the Global Financial Crisis. In response, the 5s30s curve resumed its flattening and the 10-year U.S. Treasury yield ended little changed.

Graphic: Inflation at its highest in almost 30 years via Bloomberg.

Simply put, it’s likely that bond market participants shrugged off the data and an acceleration in inflation will be temporary.

Still, yields could become further depressed due in part to fundamental and technical factors – issuance, short coverings, a fading reflation trade, peak growth – as well as the August 1 reinstatement of the U.S. debt limit.

“[I]f Congress idly stands by, the Treasury will eventually hit the debt limit on October 18. The consequences would be severe,” Moody’s strategists believe. Michael A. Gayed of the Lead-Lag Report adds the odds of a rating downgrade increase, as a result, also.

Moody’s concludes: “[T]apering earlier than the markets are pricing would risk causing yields to jump when some of the technical drags are easing.”

Graphic: Bank of America Corp’s (NYSE: BAC) timeline for taper via The Market Ear

Adding, since inflation and rates move inversely to each other, a mistimed bump in rates – alongside increased nervousness over a COVID-19 resurgence and fading fiscal stimulus – would potentially take away from the commitment to keep inflation expectations closer to the Federal Reserve’s 2%-plus target.

In all, in support of the Fed’s target, COVID-19 must not become a problem, and the Biden administration, alongside Congress, must come to terms on another fiscal package – a few trillion in size – that looks to extend the Treasury debt ceiling.

As unemployment declines and labor force participation increases, expectations of rate normalization will solidify. This is a boon for beta sectors, according to JPMorgan Chase & Co’s (NYSE: JPM) Marko Kolanovic.

Considerations: Investment bank and financial services company Morgan Stanley (NYSE: MS) believes downside risks are compounded by equity and bond positioning, low short interest, and the involvement of systemic strategies which could intensify a sell-off.

Graphic: Bank of America Corp (NYSE: BAC) chart on futures positioning via The Market Ear.

MS says CTAs are still short bonds which, according to CityWire, could continue the bond rally, pressuring stocks as investors “fear the bond market may know[] something they don’t.”

Add the passage of the July options expiration (OPEX), the window for the aforementioned dynamics (alongside a shift in preferences from saving and investing to spending, monetary tightening, seasonality, as well as a COVID-19 resurgence) to take over is opened.

After OPEX, according to SpotGamma, “the market tends to experience its largest intraday volatility which corresponds to the reduction in large options positions, and the hedging associated with them.”

Graphic: SpotGamma’s EquityHub showed 30% of the S&P 500’s gamma expiring July 16 which, as SpotGamma has said in the past, “creates volatility because, as large options positions expire[], are closed and/or rolled, dealers have large hedges they need to adjust.”

What To Expect: In the coming sessions, participants will want to focus their attention on where the S&P 500 trades in relation to the $4,334.25 spike base.

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).

In the best case, the S&P 500 trades sideways or higher; activity above $4,334.25 puts in play the $4343.00 VPOC. Trade beyond that signposts may then put in play the $4,346.75 HVNode – which corresponds with two anchored Volume Weighted Average Prices (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. 

More On 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.

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.

If higher, entry into an overhead supply area, above the $4,357.75 low volume area (LVNode), portends continuation to the $4,371.00 VPOC and$4,384.50 RTH High. 

In the worst case, the S&P 500 trades lower; activity below $4,334.25 puts in play the $4,314.75 high volume area (HVNode). Initiative trade beyond $4,314.75 could reach as low as the $4,297.00 HVNode. Closeby is the $4,291.00 VPOC and $4,285.00 composite HVNode.

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

News And Analysis

When VIX hits an extreme, options traders look to volatility arbitrage. (tasty)

Identifying gamma squeezes with SpotGamma’s options modeling. (BZ)

U.S. banks see loan, revenue pressure despite consumer spending. (Fitch)

The U.S. economy continued to strengthen as mobility trended up. (S&P)

‘A free put on the market’: Ambrus CIO talking volatility dislocations. (BZ)

OPEC+ agrees oil supply boost after UAE, Saudi reach compromise. (REU)

An unexpected tightening in policy would generate market volatility. (Moody’s)

Semiconductor supply shortage, inflation, and technology regulation. (S&P)

Frenzied retail investing boom has been cooling off in recent weeks. (Fortune)

Delta Air is seeing positive growth in business travel as offices open. (S&P)

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 June 21, 2021

Market Commentary

Index futures attempt to balance.

  • Yield curve flattens, China eyes BTC.
  • Ahead: CFNAI. ECB and Fed speak.
  • Indices auctioned sideways to higher.

What Happened: U.S. stock index futures auctioned higher and yields dropped.

After a big shift in the Federal Reserve’s so-called dot-plot, bond yields on the short-end of the curve rose while long-dated yields dropped in line with projections future inflation is easing. This flatter yield curve is a negative for cyclical stocks which can’t pass on increased costs, thereby impacting sales and margins.

Given the divergence across major, broad market indices, the implications of a flatter yield curve are apparent. Investors sold, heavily, cyclical stocks, evidenced by relative weakness in sectors like financials and transportation. 

In other areas, bitcoin fell after China cracked down on crypto-related transactions. Oil held its highs on a slowdown in talks between the U.S. and Iran. 

Ahead is data on the Chicago Fed National Activity Index (CFNAI). Also, today, members of the ECB and Fed will speak. 

Graphic updated 7:10 AM ET.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by initiative trade below the $4,177.25 high volume area (HVNode) and end-of-day spike liquidation to and through $4,161.00, a strong support going into Friday’s derivative expiry.

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: SpotGamma analysis suggested minimal support below $4,200.00, in the S&P 500.

For today, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,161.00 spike base puts in play the $4,177.25 HVNode. Initiative trade beyond the $4,177.25 HVNode could reach as high as the $4,199.25 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 lower; activity below $4,161.00 suggests an acceptance of Friday’s knee-jerk move from value. In such a case, participants are cautioned on further downside. First comes the $4,153.25 HVNode. Thereafter, if lower, participants can target the overnight low (ONL) at $4,126.75 and HVNode at $4,122.25.

Overnight Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.
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). Noting, seasonality supports the Nasdaq 100’s relative strength. 
Graphic: SHIFT search suggests participants were most interested in call strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 (INDEX: NDX), last week. This activity may denote (1) stock replacement, (2) hedges for underlying short positions, or (3) speculation on the upside.

News And Analysis

Energy | Natural-gas glut has evaporated, driving prices higher. (WSJ)

Economy | Supply chain risks extend into 2022, stoking inflation. (WSJ)

Travel | American Air cuts some flights to avoid potential strains. (WSJ)

Politics | House bills put big tech step closer to antitrust regulation. (Fitch)

Markets | Goldman, JPMorgan pin emerging-market bets on hawks. (BBG)

Politics | Infrastructure bill talks continue; China comes in focus. (Moody’s)

Travel | Europe’s air traffic reaches 50% of 2019 amid recovery. (BBG)

Travel | Canada won’t fully reopen border until 75% vaccinations. (BBG)

What People Are Saying

Innovation And Emerging Trends

Technology | GM plans to expand its fuel-cell business beyond EVs. (CNBC)

Technology | Why the big automakers are pouring money into robotics. (TC)

Education | The pandemic’s effects have depressed college enrollment. (Axios)

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For June 16, 2021

Market Commentary

Index futures in balance.

  • Ahead: Housing starts, trade prices, FOMC.
  • Indices diverge and trade sideways to lower.

What Happened: U.S. stock index futures auctioned sideways ahead of an important Federal Open Market Committee (FOMC) announcement at 2:00 p.m. Eastern Time, today.

As stated in prior commentaries, the odds of substantial change to policy are low. Instead, participants will likely hear that despite Fed policy remaining unchanged, tools exist to combat inflation.

Also, before the open, China established orders limiting exposure to overseas commodities and U.K. consumer prices rose. Important releases, aside from the Fed decision, include data on housing starts and trade prices, as well as text on infrastructure.

Graphic updated 7:13 AM ET.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by a liquidation break that found acceptance below the $4,238.00 spike base. That is significant because it negated the knee-jerk, end-of-day bullishness of Monday’s session.

Liquidation Breaks: The profile shape suggests participants were “too” long and had poor location. This corrective activity enables favorable entry and exit.

Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).

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 $4,234.25 high volume area (HVNode), which corresponds with the average price bought and sold (via the VWAP) since consumer price data was released last week, puts in play the $4,249.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,258.00 overnight high (ONH) and $4,270.25 Fibonacci price extension.

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

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

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

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 $4,234.25 HVNode suggests caution. It is likely participants will trade to the $4,227.75 HVNode. Thereafter, depending on how participants respond to a test of the HVNode, if lower, the $4,213.75 LVNode and balance area low (BAL) come into play, first. Initiating below the BAL is bearish. In that instance, if selling is aggressive, the $4,177.25 HVNode is in play.

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). Important to monitor where the indices close, today. Above balance high or trend, bullish. Below, that’s near-term bearish.
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) and Nasdaq 100 Index (INDEX: NDX), yesterday.

News And Analysis

Economy | U.K. inflation’s jump above BOE goal stirring a debate. (BBG)

Economy | China’s economic data disappoints as spending lags. (BBG)

Politics | Disagreements, low expectations as Biden and Putin meet. (REU)

Economy | U.S. retail sales drop, hinting at shift to services spend. (BBG)

Politics | China’s government made warning. Planes fly over Taiwan. (Axios)

Markets | Citi is latest to warn of bigger-than-expected trading drop. (BBG)

What People Are Saying

Innovation And Emerging Trends

FinTech | The big difference between a digital dollar and a CBDC. (BBG)

Markets | Everyone’s a rising star when debt is relatively cheap. (BBG)

Markets | Well-behaved bubbles often make history. An analysis. (a16z)

Markets | The latest blow to 60/40 model is an exodus of pensions. (BBG)

COVID | How prior coronavirus infections factor into herd immunity. (Axios)

Travel | You’ll soon be able to use your iPhone as ID at the airport. (Verge)

FinTech | Exchanges are looking to accelerate their cloud adoption. (TM)

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For June 15, 2021

Market Commentary

Index futures exit balance, discover higher prices.

  • The calm before the storm (FOMC).
  • Ahead: Production, PPI, retail sales.
  • Indices trade higher, then sideways.

What Happened: U.S. stock index futures traded higher ahead of key releases on U.S. industrial production, producer prices, and retail sales. Tomorrow, of bigger concern, is Wednesday’s Federal Open Market Committee (FOMC) rate decision.

As stated in Monday’s commentary, the FOMC will likely not change its forward guidance on interest rates or asset purchases. That’s according to Moody’s which noted: “The statement will likely strengthen the FOMC’s assessment of the acceleration in inflation and possibly mention the central bank has the tools to address inflation if needed. This would be an effort to keep long-term inflation expectations in check.”

Graphic updated 6:43 AM ET.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade above the $4,249.00 minimal excess high.

Initiative Buying: Buying within or 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.

This move higher, across the broad market, comes as participants attempt to jack up prices in accordance with their views on issues like inflation, COVID-19, employment, supply chains, and more. Adding, measures of breadth indicate index constituents are participating.

Graphic: Advance/Decline Lines for broad market indices suggest breadth has improved, via MarketInOut.

On the other hand, metrics, such as S&P 500 skew – a measure of perceived tail risk and the chances of a black swan event – suggest participants are pricing the slope of implied volatility higher. At the same time, sentiment cooled and individual stock volatility rose.

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 spike base puts in play the $4,249.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,258.00 overnight high (ONH) and $4,270.25 Fibonacci price extension.

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).

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

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

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

In the worst case, the S&P 500 trades lower; activity below the $4,238.00 spike base puts in play the $4,229.00 point of control (POC). Thereafter, if lower than the $4,227.00 composite high volume area (HVNode), the $4,213.75 balance area low (BAL) comes into play. 

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.
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 S&P 500 and Nasdaq 100 follow-through on breakouts. Russell struggles with past peaks. Dow puts in reversal candle at a longer-term trendline.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below in the cash-settled S&P 500 Index (INDEX: SPX), Monday. The same is true for the cash-settled Nasdaq 100 Index (INDEX: NDX). Note, however, a bid in far out-of-the-money calls on Nasdaq, through FOMC. This activity supports a rotation back into technology and growth, possibly.

News And Analysis

Politics | China calling U.S. ill after Biden rallies G-7 against Beijing. (BBG)

Politics | EU, U.S. agree to a five-year truce on Boeing-Airbus trade. (BBG)

Economy | EU is set to lift travel curbs for U.S. residents this week. (BBG)

Politics | House antitrust bills taking a tight aim at technology giants. (Axios)

Economy | Dimon said JPMorgan hoarding cash due to inflation. (CNBC)

What People Are Saying

Innovation And Emerging Trends

Politics | White House releases national strategy for domestic terror. (Axios)

FinTech | Mark Cuban suggesting ‘banks should be scared’ of DeFi. (CNBC)

Economy | The bubbliest housing markets flash 2008-type warnings. (BBG)

FinTech | Bitcoin’s most significant code improvement was approved. (Axios)

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For June 10, 2021

Market Commentary

Index futures attempting to exit balance, resume discovery.

  • U.S. and China resume their talks.
  • Ahead: U.S. inflation data for May.
  • Indexes auction sideways to lower.

What Happened: U.S. stock index futures auctioned sideways-to-lower alongside a resumption in talks between the U.S. and China. 

Key for today is the response to inflation data due an hour before the open. A hot reading may bolster the Fed’s case to withdraw stimulus.

Graphic updated 7:48 AM ET.

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by the spike below a composite high volume area (HVNode). This is significant because that particular reference denotes a perception of value at higher prices.

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).

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, this push-and-pull activity, over the past few sessions, comes as participants position themselves for the next directional move. Thursday’s CPI data will likely allow participants a better understanding of the Fed’s timeline to withdraw stimulus. 

“A new high since the early 1990s is in the expectations and Treasury yields have been sliding,” said Steen Jakobsen, chief investment officer at Saxo Bank. “It is difficult to determine how hot the number would have to be on the upside to jolt this market, while a large downside miss would perhaps be more surprising and elicit a larger market reaction in risk appetite.”

Still, though, the market is stuck in long-gamma.

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.

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,227.00 HVNode puts in play the $4,231.00 VPOC. Initiative trade beyond the VPOC could reach as high as the ONH at $4,238.00 and $4,247.75 Fibonacci price extension.

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; remaining below the $4,224.75 spike base denotes acceptance of Wednesday’s knee-jerk move from value. In such a case, lower prices are likely. Participants ought to focus their attention on whether the low at $4,206.00 holds. If not, the next level of interest is the $4,198.75 HVNode. Thereafter, attention moves to the $4,177.25 HVNode.

Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures.
Graphic: Daily candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Note the weakness in Dow, as well as strength in Nasdaq and Russell. Russell’s strength could be construed as a demand for risk.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current in the cash-settled S&P 500 Index (INDEX: SPX), yesterday. On the other hand, in the Nasdaq 100 Index (INDEX: NDX), participants bid call strikes out 1-2 months. This activity is happening in conjunction with a move lower in yields. 

News And Analysis

Politics | China and U.S. agree to push forward trade, investment. (BBG)

Markets | Banks to face stiff bitcoin, crypto capital requirements. (BBG)

Markets | The SEC is looking to freshen up equity market structure. (Axios)

Economy | Half of pandemic unemployment may have been stolen. (Axios)

Economy | ECB sticks to bond-buying play despite improving outlook. (FT)

Economy | Global minimum tax ups multinational tax hikes prospects. (Fitch)

Markets | The meme stock frenzy not solely driven by retail traders. (CNBC)

What People Are Saying

Innovation And Emerging Trends

FinTech | Crypto is the ‘wild west’ needing consumer protections. (BBG)

Travel | Heavier passengers on planes mean new safety limits. (WSJ)

FinTech | Tether commercial paper disclosure puts it among giants. (FT)

Energy | G-7 debate accelerating a shift to electric cars, from oil. (BBG)

FinTech | Atom Finance launches white-labeled data experiences. (BZ)

FinTech | State Street adds digital unit to capitalize on crypto craze. (FT)

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For May 21, 2021

Market Commentary

Index futures in balance.

  • Global tax revamp is gathering pace.
  • Ahead: Home sales, PMI, Fed speak.
  • Indices sideways-to-higher overnight.

What Happened: U.S. stock index futures auctioned within prior-range, overnight, alongside calls for a global minimum corporate tax rate of 15%, data on existing home sales and PMI, as well as Fed speak.

Graphic updated 7:25 AM EST.

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

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by initiative trade beyond the S&P 500’s $4,134.00 spike base, which is significant because it marked a so-called pivot on the composite profile (i.e., above = bullish, below = neutral-to-bearish).

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).

Initiative Buying: Buying within or above the previous day’s value area.

This recent ongoing rotation at higher prices comes as participants have been attempting to price in emerging dynamics with respect to rising inflation, fiscal and monetary tightening, COVID-19 case rises, geopolitical conflict, and the like.

In pricing in these dynamics, the movement has been both volatile and mechanical, halting short of key visual references suggesting the participants involved are short-term (i.e., technically-driven) in nature. Adding, amid this rotation, quite a bit of poor structure has been cleaned up (i.e., low-volume areas), but still, judging by a lack of excess at certain points on the composite volume profile, odds point to limited conviction and commitment.

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.

The major takeaway? Without follow-through to the downside, it is difficult to get pessimistic. As the saying goes, “never short a dull market.” The case for higher prices, as high as $4,300.00-$4,400.00, per JPMorgan Chase & Co (NYSE: JPM) research remains in play.

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,153.25 high volume area (HVNode) targets the $4,177.25 HVNode. Initiative trade beyond the $4,177.25 HVNode could reach as high as the $4,227.00 POC. 

In the worst case, the S&P 500 trades lower; activity below the $4,153.25 HVNode puts in play the $4,136.25 and $4,122.25 HVNodes. Trading below those two references is negative; participants should look for the $4,071.00 POC to offer some response.

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.
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). Relative strength is shifting back to the Nasdaq.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for May 20. Activity in the options market was primarily concentrated in short-dated tenors, in call strikes at and above current prices.
Graphic: SHIFT search suggests participants were most interested in call and put strikes across available strikes in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), May 20.

News And Analysis

Economy | Global tax revamp gathers pace as Europe salutes U.S. proposal. (BBG)

Economy | Markets still pricing in first rate hike well ahead of Fed guidance. (Moody’s)

Economy | Housing outlook facing more uncertainty as 2022 growth revised. (MND)

Economy | Global corporate rating stabilization continues as recovery unfolds. (Fitch)

Economy | Uneven economic, population trends contribute to diverging credit. (Moody’s)

Economy | How the post-pandemic labor crunch is curbing U.S. manufacturing. (REU)

Economy | Eurozone business growth hits a high on services resurgence. (REU)

What People Are Saying

Innovation And Emerging Trends

FinTech | Nasdaq, Benzinga partner over actionable market intelligence. (BZ)

FinTech | Analysis: How to borrow cryptocurrencies with more certainty. (VV)

FinTech | MX adds Lexi Hall to empower regulatory innovation in fintech. (BZ)

Crypto | U.S. Treasury calls for stricter cryptocurrency rules, reporting. (TC)

Energy | Ford’s powerhouse EV F-150 can actually power your house. (TC)

FinTech | Harris, CHC discussed digital banking for Northern Triangle. (Axios)

About

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

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

Disclaimer

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

Categories
Commentary

Daily Brief For May 20, 2021

Market Commentary

Index futures in balance.

  • Federal Reserve considers taper.
  • Ahead: Business outlook, claims.
  • Indexes in prior-range, sideways.

What Happened: U.S. stock index futures auctioned within prior-range, overnight, ahead of fundamental releases such as the Philadelphia Fed Business Outlook and claims data.

Graphic updated at 7:30 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 trade above the $4,069.25 high volume area (HVNode), which is significant because that value marked the other end of a micro-composite 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.

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

Further, this activity is happening in the context of concerns over rising inflation, which may prompt monetary authorities to ease back on stimulus. Yesterday, the Federal Reserve’s minutes showed that some on the committee were interested in tapering discussions. 

“It was a surprise to hear the talk about Fed tapering,” Joyce Chang, JPMorgan’s chair of global research, said. “The market had been thinking there might be a couple of months before you really saw this particular issue come into focus.”

Why is this – inflation – a concern? 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 fear that rates will rise to protect the economy from overheating.

Higher rates have the potential to reduce the present value of future earnings, making stocks, especially those that are high growth, less attractive. To note, however, rates are still rangebound; rates on the 10 Year T-Note sit below their March high and are likely to continue higher, which the market will likely absorb.

For today, beyond fundamental context, participants can trade from the following frameworks. 

In the best case, the S&P 500 trades sideways or higher; activity above the $4,104.75 low volume area (LVNode) has the potential to reach up to the $4,122.25 HVNode. Initiative trade beyond the $4,122.25 HVNode could reach as high as the $4,134.00 spike base (a pivot on the composite profile; above = bullish, below = neutral-to-bearish). 

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).

In the worst case, the S&P 500 trades lower; activity below the $4,069.25 HVNode targets a repair of the minimal excess low at $4,055.75. Thereafter, on a failed response, prices may continue lower, below the $4,050.75 LVNode boundary. In such a situation, caution longs. The potential exists to trade to the POCs at $4,015.00 and $4,001.00, if not even lower.

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.
Graphic: 4-hour profile chart of the Micro E-mini S&P 500 Futures.
Graphic: 65-minute candlestick charts of the S&P 500 (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right).
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), May 19. To note, however, participants were paying up for longer-dated upside exposure (evidenced by call activity). Note the December calls trading in the NDX and June calls in SPX.

News And Analysis

Recovery | New COVID-19 coronavirus cases fell by 20% in the last week. (Axios)

Economy | Central bank taper timelines are now starting to come into focus. (Axios)

Recovery | Vaccine boosters could be necessary as soon as September. (Axios)

Technology | Cisco says shortages will disrupt supply chains for rest of year. (FT)

Economy | Recovery funds increase investment but long-term gains uncertain. (Moody’s)

Energy | China’s industrial commodities slide after warning of crackdowns. (REU)

Travel | The U.S. is weighing changes to pandemic air travel restrictions. (REU)

Economy | Refinance volumes increase for the second week despite rate bump. (MND)

Economy | Inflation surveys, market pricing consistent with what Fed wants. (Barrons)

What People Are Saying

Innovation And Emerging Trends

FinTech | New digitial exchange offers gold exposure and funding for miners. (REU)

Crypto | Sh*t coin billionaire: tales from the fringe of the cryptocurrency craze. (BBG)

Crypto | China deepens its fintech dominance with new digital currency. (Diplomat)

Crypto | Central bank digital currencies could disrupt financial systems. (Fitch)

FinTech | OCC chief signals new direction on bank supervision and fintech. (AB)

FinTech | Stripe betting on creator economy powered by likes of Clubhouse. (BI)

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.