Daily Brief For October 15, 2021

Editor’s Note: Yesterday, it came to my attention that the top-most graphic quoted outdated levels. Great time for that to happen, knowing that all upside levels came into play, haha!

My apologies for failing to update that graphic, properly. In the future, if you have concerns over levels, scroll to the bottom where you see the text: “Click here to load today’s updated real-time key levels.” By clicking, you will be directed to a real-time, updated TradingView chart.

If any other questions (or you simply want to stay in touch throughout the session), email me at Happy trading!

Market Commentary

Equity index futures trade sideways to higher with most commodities. Volatility ebbs.

  • Strong balance sheets, investment, labor.
  • Ahead: Retail sales, sentiment, and more.
  • Positioning for responsive trade, balance.

What Happened: U.S. stock index futures auctioned sideways to higher overnight alongside reports the economy will be supported by consumer balance sheets, business investment, and a healthy labor market.

Ahead is data on retail sales, the Import Price Index, the Empire State Index (8:30 AM ET), University of Michigan consumer sentiment and business inventories (10:00 AM ET), as well as Fed-speak by John Williams (12:20 PM ET). 

Graphic updated 6:00 AM ET. Sentiment Risk-On if expected /ES open is above the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. Levels may have changed since initially quoted; click here for the latest levels. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) calculations are based on where the prior day’s reading falls with respect to the MAX and MIN of all occurrences available. A higher DIX is bullish. At the same time, the lower the GEX, the more (expected) volatility. SHIFT data used for S&P 500 (INDEX: SPX) options activity. Note that options flow is sorted by the call premium spent; if more positive then more was spent on call options. Breadth reflects a reading of the prior day’s NYSE Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index (INDEX: VIX) from 0-100.

What To Expect: As of 6:30 AM ET, Friday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open outside of prior-range and -value, suggesting a potential for immediate directional opportunity.

Gap Scenarios: 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, on strong intraday breadth and divergent market liquidity metrics, the best case outcome occurred

After numerous sessions of a minimum separation in value (i.e., the area where 70% of the day’s volume occurred) failed to support downside price discovery, equity index futures established a rounded bottom before initiative buyers expanded range and value the opposite way.

In light of the recovery process, the S&P 500 – as evidenced by p-shaped emotional, multiple-distribution profile structures – finished, yesterday, just short of the $4,437.75 micro composite point of control (MCPOC) as momentum faded at key areas of resting liquidity.

Graphic: Screenshot of conditions, end-of-day Thursday. Equity indices, commodities, and bonds ended sideways to higher. The Nasdaq 100 led the S&P 500, Russell 2000, and Dow Jones Industrial Average, a clear change in tone. All key levels to the upside, yesterday, came into play; the $4,437.75 micro-composite point of control (MCPOC), which corresponded with resting market liquidity, marked an end to the discovery process.

In other words, the near-vertical price rise was sold responsively. This activity comes after participants saw days of responsive buying into the dip, earlier this week.

Taken together, the status quo remains responsive trade as participants look to balance (i.e., build out a base) ahead of new information. Once new information comes to light, participants will have a base to resolve and build on, directionally, into the end of this year.

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

Zooming out, we see the Nasdaq 100 coming into trend, Fibonacci, and volume-weighted average price (VWAP) resistance. This dynamic, alongside poor structure and divergent market liquidity metrics, promotes the responsive trade thesis.

Graphic: SPDR S&P 500 ETF (NYSE: SPY) top left, Invesco QQQ Trust Series 1 (NASDAQ: QQQ) top right, iShares Russell 2000 ETF (NYSE: IWM) bottom left, SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA) bottom right. Spending more than a few hours of trade above trend, VWAP (yellow), and the 61.80% Fibonacci retracement suggest good odds of upside continuation.

Further, the aforementioned trade is happening in the context of a seasonally bullish cycle of rebalancing and earnings, as well as the risks associated with a taper in asset purchases and a hike in rates.

“The economy is being supported by robust consumer balance sheets, rebounding business investment and a healthy labor market,” adds Hugh Gimber, global strategist at J.P. Morgan Asset Management.

In terms of positioning, coming into October 14, according to SpotGamma, the decay of customers’ long put hedges implied those taking the other side – dealers who warehouse short put risk – would cover their underlying hedges, bolstering the violent move higher.

“[T]his was a vanna/charm type rally back into major resistance. Said another way: we see this as a short cover rally, and the market is unstable.” 

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

In the best case, the S&P 500 trades sideways or higher; activity above the $4,437.75 MCPOC puts in play the $4,463.75 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,481.75 high volume area (HVNode) and $4,510.00 LVNode, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,437.75 MCPOC puts in play the $4,425.00 untested point of control (VPOC). Initiative trade beyond the VPOC could reach as low as the $4,393.75 HVNode and $4,349.00 VPOC, or lower.

Click here to load today’s updated real-time key levels into the web-based TradingView charting platform. Please note that all levels are derived using the 65-minute timeframe.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures updated 6:30 AM ET.


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

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

Short Covering: The profile shape suggests participants were “too” short and had poor location.

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

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

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.

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

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

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

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

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.

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

News And Analysis

Upgrades outpace downgrades for second consecutive quarter.

‘Prick this bubble’: Morgan Stanley’s CEO calling for rate hikes.

Bitcoin futures frenzy erupts as day traders pile into ETF plays.

Global energy squeeze triggers unusual decline at U.S. oil hub.

China broke its Evergrande silence and said risks are in check.

JPMorgan Chase suggests more M&A could be on the horizon.

What People Are Saying


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.


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.


Market Commentary For The Week Ahead: ‘Follow The Flow’

Key Takeaways:

What Happened: After prices were advertised below balance in the week prior, responsive buyers in the S&P 500 began a rally that found acceptance back inside a larger balance-area, near the $3,800 high-open interest strike.

Thereafter, initiative buyers extended the S&P 500’s rally, breaking the index above its $3,824.25 balance-area high (BAH), before establishing acceptance near the $3,850.00 price extension, an upside target, and auctioning back into range, repairing poor structures left in the wake of discovery.

What Does It Mean: In light of a failed breakdown in the week prior, U.S. stock indexes were best positioned for further downside discovery. However, after what appears to be aggressive buying in response to prices below value, it was clear that was not the case.

This leads to the following question: why did selling stop on January 15? One answer, aside from a positive start to the earnings season and prospects for further stimulus, may be OPEX, the January 15 option expiry. On expiration days, delta and gamma exposures change — depending on how derivatives exposure is removed or rolled — which causes dealers to adjust hedges.

According to SpotGamma, the January 15 expiry “resulted in a ~50% reduction in single stock gamma … [which] creates volatility because, as large options positions expire[], are closed and/or rolled, dealers have large hedges they need to adjust. There is a trove of data to suggest that the bulk of single stock call activity is long calls, and based on that we believe dealers (who are short calls vs long stock) therefore have long stock positions to sell.”

Put more simply, the price action may have been attributable to the sale of long stock that hedged expiring short derivatives exposure above the market (i.e., call side).

Per the SpotGamma S&P 500 dealer hedging graphic for the January 15 expiry below, “The black line was the mark on Thursday evening, with the red line being the forecasted position on Tuesday. This red line being substantially lower than the black suggests that dealers had to reduce delta exposure as a result of expiration. Note there is a larger shift at overhead prices suggesting this was a ‘call heavy’ expiration.”

Graphic 1: SpotGamma S&P 500 dealer hedging graphic for the January 15 options expiry

After the VIX (i.e., CBOE’s Volatility Index) expiry on January 20, alongside the inauguration of President Joe Biden, the prospects for a rally improved as “event premium in IV dries up … [and] put values drop, which allows dealers (who are short puts) to buy back short hedges … [fueling] a quick rally up to the 3850SPX/385SPY level (green arrow).”

Graphic 2: SpotGamma S&P 500 Gamma Levels

Adding, the number of put options sold to open exceeded the number bought to open, per SpotGamma, suggesting increased confidence in higher prices as market participants look to options for income, and not insurance.

Historically, the returns after such developments are mixed — more often the appearance of strong initiative buying surfaces (e.g., August and January 2020) before a liquidation helps correct excess inventory, and bring sense back into the market.

Graphic 3: SpotGamma plots opening option positions.

What To Expect: During Friday’s session in the S&P 500, responsive buying surfaced after a test of the $3,818.25 High-Volume Node (HVNode), above the $3,813.50 ledge (below which is a pocket of low-volume).

In the simplest way, high-volume areas can be thought of as building blocks. 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 value for favorable entry or exit.

After the S&P 500 found acceptance above the $3,813.50 ledge and $3,824.25 BAH, it encountered responsive selling near the $3,840.75 HVNode, the site of a downtrend line. Since the selling transpired at a visual level, market participants know that technically-driven, short-term traders in control. In other words, institutions (e.g, funds) tend not to transact at exact technical levels.

Given the aforementioned dynamics, participants will come into Monday’s session knowing the following:

  1. The S&P 500’s higher-time frame breakout remains intact, per graphics 7, 8, and 9.
  2. Late last year, JPMorgan Chase & Co. (NYSE: JPM) strategist Marko Kolanovic suggested equities would rally with the S&P 500 auctioning as high as $4,000 on the basis of low rates, improved fundamentals, buybacks, as well as systematic and hedge fund strategies. Since then, Kolanovic downgraded growth and expressed the limited potential for further upside.
  3. The earnings of heavily weighted index constituents suggests participants discount improved speculative flows and delta (e.g., presence of committed buying or selling as measured by volume delta). Please see graphics 4, 5, and 6.
Graphic 4: Supportive order flow in the SPDR S&P 500 ETF Trust (NYSE: SPY), the largest ETF that tracks the S&P 500, on January 20 trend day.
Graphic 5: Supportive order flow in the SPDR S&P 500 ETF Trust (NYSE: SPY), the largest ETF that tracks the S&P 500, on January 22.
Graphic 6: Speculative derivatives activity for the week ending January 23, 2021.
Graphic 7: Daily candlestick chart of the cash S&P 500 Index

Given the above dynamics, the following frameworks apply for next week’s trade.

In the best case, the S&P 500 takes back Friday’s liquidation and auctions above the $3,840.75 HVNode. Expectations thereafter include continued balance or initiative buying to take out the $3,859.75 overnight all-time high (there is a low probability that overnight all-time highs end the upside discovery process). Thereafter buying continues as high as the $3,884.75 price projection, or double the width of the balance-area, the typical target on a balance-area breakout.

In the worst case, any break that finds increased involvement (i.e., supportive flows and delta) below $3,824.25 BAH, would favor continuation as low as the $3,763.75 BAL.

Graphic 8: Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures

Conclusions: Despite broad-market indices being in a longer-term uptrend, the odds of substantial upside resolve are low. Participants ought to look for favorable areas to transact, such as those high-volume areas in the S&P 500 featured in graphic 8.

All in all, the risk and reward dynamics, at these price levels, are poor.

Graphic 9: 4-hour profile chart of the Micro E-mini S&P 500 Futures

Levels Of Interest: $3,884.75, $3,859.75, $3,840.75 HVNode, $3,824.25 BAH, $3,763.75 BAL.

Cover photo by Jayant Kulkarni from Pexels.


Market Commentary For 1/21/2021

Notice: To view this week’s big picture outlook, click here.

What Happened: After a day of active discovery, U.S. index futures established a new all-time high in the overnight session, before backing off into prior-range and -value.

What Does It Mean: Initiative buyers extended the S&P 500’s rally, breaking the index above its $3,824.25 balance-area high (BAH). Later, market participants found acceptance near the $3,850.00 price extension, an upside target.

What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM ET) will likely open close to prior-balance and -range, implying higher volatility at the open.

Few dynamics to note: (1) poor structure in prior sessions, as evidenced by the low-volume areas (LVNodes) in the graphic above, (2) a new overnight all-time high (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), (3) a break that finds acceptance outside of a larger balance-area portends continuation up to the 100% price projection, or double the width of the balance-area.

In the best case, given that the open will occur after a day of active discovery, participants can expect overnight balancing activity to carry on. If initiative buying was to take out the $3,859.75 overnight high (ONH), then participants ought to target the $3,884.75 balance-break projection.

The go/no-go level for further upside is the $3,859.75 (ONH). The go/no-go level for downside is the $3,824.25 balance-area high (BAH). Anything in-between classifies as rotation, or the potential repair of poor structures left in the session prior.

Noting: Low-volume areas denote conviction and should hold against future probes. If a market was to break into a low-volume area, then odds favor discovery through the entire area, to the next high-volume concentration, or the market’s most recent perception of value.

Levels Of Interest: $3,824.25 BAH, $3,859.75 ONH, $3,884.75 projection.


Market Commentary For 12/10/2020

What Happened: U.S. index futures were flat overnight after a trend-day lower from fresh new all-time highs.

What Does It Mean: During Wednesday’s regular trading, sellers extended range down to the micro-composite high-volume node near $3,667.75, a price level where participants spent a large amount of time in the past. The session ended outside of prior balance and range with poor profile structure denoting the presence of directional conviction.

Overnight, participants accepted the lower prices, holding near Wednesday’s low.

What To Expect: In light of yesterday’s selling, the following frameworks apply for today’s trade.

In the best case, responsive participants surface at the $3,667.75 high-volume node and buyers make an attempt to repair some of Wednesday’s poor structure.

In the worst case, if the S&P 500 auctions below $3,667.75, participants would look to whether the $3,640.00 balance-boundary and offers a response. If not, initiative buying has been exhausted — the chances of sustained upside directional resolve are diminished greatly.

Levels Of Interest:  $3,667.75 high-volume node and $3,640.00 balance-boundary.