Tag: Value-Area Placement

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Commentary

Daily Brief For November 16, 2021

What Happened

Equity index futures auctioned sideways alongside no new fundamental catalysts.

Ahead is data on retail sales and import prices (8:30 AM ET), industrial production and capacity utilization (9:15 AM ET), the NAHB home builders’ index, and business inventories (10:00 AM ET), as well as Fed-speak at 12:00 and 2:30 PM ET.

Graphic updated 6:10 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. 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. Learn the implications of volatility, direction, and moneyness. 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

On minimally divergent intraday breadth and unsupportive market liquidity metrics, the best case outcome occurred, evidenced by the balance and overlap of value areas in the S&P 500.

This activity, which marks a potential willingness to continue balance, is adding strength to poor structure, a dynamic that is helping clear the market of technical instabilities.

Graphic: Divergent delta (i.e., non-committed selling 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 (i.e., rotational trade that suggests current prices offer favorable entry and exit; the market is in balance).

Context: According to Morgan Stanley (NYSE: MS), the S&P 500 ought to be weighed down by slower earnings growth and rising yields. The firm’s chief U.S. equity strategist explains that risk and reward for broad indices look unattractive.

“[W]e think 2022 will finally bring the multiple compression we incorrectly forecasted for 2H 2021. Our 12-month target P/E of 18x is 15% below current levels but in line with the 5-year average and the top quintile for the past 30 years.” 

“The risk of de-rating has been deferred, not avoided, and makes our 12-month S&P 500 Bear/Base/Bull targets of 3900/4400/5000 unexciting.”

This comes alongside expectations that inflation – a product of strong demand – is likely to worsen but not disrupt deflationary trends, such as increased moneyness of nonmonetary assets, innovation, and the like. 

Graphic: Inflation ought to worsen before it cools, via The Market Ear.

Moreover, in terms of positioning, the CBOE Volatility Index (INDEX: VIX) was a touch higher, while demand came in across the front area of the VIX futures term structure. 

Obviously, the tone has changed a bit since last week; customer demand and exposure to very short-dated put protection declined. This was most noticeable in how the VIX term structure behaved over the past sessions. After shifting outward (mostly) in the front, a sign of demand for short-dated protection, the curve shifted back down, late last week.

So, while the initial pop (and hedging on the part of those dealers that warehouse customer options orders) was destabilizing, the term structure slid back into line and the removal of that short-dated protection had the effect of leading dealers to buy back short stock/futures hedges.

This stabilized the market. 

Thereafter, the market drifted back up to the level at which positive options gamma is highest, ahead of a fast-approaching monthly options expiration (OPEX). Into OPEX, dealers’ positive exposure to the risks of price movement, based on predominant positioning in the S&P, ought to increase. In hedging this exposure, dealers ought to supply the market with liquidity (i.e., sell stock/futures) which ought to dampen upside volatility.

So, presently, we’re in a bind and things ought to loosen after OPEX, allowing fundamental catalysts to play a bigger role in price discovery.

A way to play this dynamic is to structure some sort of options spread that applies the proceeds from a short option (which capitalizes on pinning and the rapid decay of soon-to-expire options) toward a long option further out in time. Learn about basic Calendar Spreads or see below.
Graphic: The risk profile of a long put calendar spread, via Fidelity.

Expectations: As of 6:00 AM ET, Tuesday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, will likely open in the lower part of a negatively skewed overnight inventory, inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,674.25 micro composite point of control (MCPOC) puts in play the $4,695.25 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,711.75 all-time high and $4,735.25 Fibonacci, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,674.25 MCPOC puts in play the $4,647.25 HVNode. Initiative trade beyond the HVNode could reach as low as the $4,619.00 VPOC and $4,590.00 balance area boundary (BAH), or lower.

As an aside, participants reclaimed the volume-weighted average price (VWAP) anchored from the all-time high and recent Federal Open Market Committee (FOMC) meeting.

This is a metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

Further, given that this development suggests the average buyer, since the all-time high, is in a winning position, who does this dynamic embolden? The buyer or seller?

Click here to load today’s updated key levels into the web-based TradingView charting platform. Note that all levels are derived using the 65-minute timeframe. New links are produced, daily.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Learn about the profile.

A Quick Guide To Options

Options offer an efficient way to gain directional exposure. 

If an option buyer was short (long) stock, he or she could buy a call (put) to hedge upside (downside) exposure. Additionally, one can spread, or buy (+) and sell (-) options together, strategically.

Commonly discussed spreads include credit, debit, ratio, back, and calendar.

  • Credit: Sell -1 option closer to the money. Buy +1 option farther out of the money.
  • Debit: Buy +1 option closer to the money. Sell -1 option farther out of the money.
  • Ratio: Buy +1 option closer to the money. Sell -2 options farther out of the money. 
  • Back: Sell -1 option closer to the money. Buy +2 options farther out of the money.
  • Calendar: Sell -1 option. Buy +1 option farther out in time, at the same strike.

Typically, if bullish (bearish), sell at-the-money put (call) credit spread and/or buy a call (put) debit/ratio spread structured around target price. Alternatively, if the expected directional move is great (small), opt for a back spread (calendar spread). Also, if credit spread, capture 50-75% of the premium collected. If debit spread, capture 2-300% of the premium paid.

Be cognizant of risk exposure to direction (delta), time (theta), and volatility (vega). 

  • Negative (positive) delta = synthetic short (long). 
  • Negative (positive) theta = time decay hurts (helps).
  • Negative (positive) vega = volatility hurts (helps).

What People Are Saying

Definitions

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

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

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.

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

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.

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 Benzinga finance and technology reporter interviewing the likes of Shark Tank’s Kevin O’Leary, JC2 Ventures’ John Chambers, and ARK Invest’s Catherine Wood, as well as a SpotGamma contributor, developing insights around impactful options market dynamics.

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.

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Commentary

Daily Brief For November 15, 2021

What Happened

Overnight, equity index futures sideways to higher with bonds. Commodities were mixed. 

The purported catalysts include corporate earnings overshadowing fears of hot U.S. inflation.

Ahead is data on the Empire State Manufacturing Index (8:30 AM ET).

Graphic updated 5:45 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. Learn the implications of volatility, direction, and moneyness. 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

On lackluster intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by the spike and separation of value, above an area of consolidation in the S&P 500.

This activity, which marks a potential willingness to restart the trend, is built on poor structure, a dynamic that adds to technical instability.

Further, should price feather back into range, participants ought to look for that probe to solicit responsive buying. However, auctioning decisively below Friday’s fairest price to do business – the $4,673.25 untested point of control – puts in play a fast-paced liquidation to $4,647.25 or so.

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 (i.e., rotational trade that suggests current prices offer favorable entry and exit; the market is in balance).

Context: Lighter than usual. Bear with me.

The purpose of the morning letter is to create a rolling narrative. We try to be as objective as possible in weighing the implications of both headwinds and tailwinds.

More and more, we discuss the apparently weighty implications of the growth of derivatives exposure and tail risk, the heightened moneyness of nonmonetary assets, trends in seasonality, buybacks, earnings growth, inflation, and more.

In light of all these dynamics, the path of least resistance is higher. 

Households’ allocation to financial assets, exposure to leveraged products, and the like, is increasing to historic levels in the face of minor erosions in liquidity. 

Why? Demand. 

As stated, in the face of historic monetary stimulus and inflation, participants are increasingly extending moneyness to nonmonetary assets (e.g., real estate or the equity market) and that dings the velocity of money and typical recovery-tracking metrics like GDP.

With that, the bond market’s pricing of risk, if we will, based on an “erratic … handling [of] large transfers of risk” – as evidenced by the Merrill Lynch Option Volatility Estimate (INDEX: MOVE) – has diverged from the pricing of equity market risk via the CBOE Volatility Index (INDEX: VIX).

Why are bond market risks being discounted by equity market participants? This isn’t new.

For years, traditional correlations have been breaking and the trend can continue.

Knowing that let’s hone in on the micro. What do we see 1 to 3 weeks out, and how can we best position ourselves to make money?

The first thing is last week’s short but broad downdraft. According to The Market Ear, “[a]t one point, NYSE upticks-downticks hit -1245. Over the past 6mo, there have only been a handful of times selloffs have gotten that broad and each one marked a N-T SPX bottom.”

What about the implications of recent consumer price index (CPI) data? “[W]hile we have come into this inflationary environment hotter than typical, as long as it isn’t the 70’s, performance is actually typically pretty good,” The Market Ear explains.

Graphic: Jefferies analysis of Bloomberg data via The Market Ear.

Another key point is strong corporate earnings and the participation of earnings per share expectations in the equity market markup.

Graphic: Tesla Inc (NASDAQ: TSLA) share price follows the path of revisions in earnings per share, via The Market Ear. 

On the other hand, we have weighty VIX and SPX expirations, this week. 

With implied volatility coming in at the end of last week, markedly, attention shifts to whether participants can build on that (i.e., commit more capital to higher strike prices), and, potentially, overwhelm post-expiration reductions in gamma exposures and increased volatility.

For analysis on the implications of recent derivatives activity, click here to view Friday’s newsletter.

Expectations: As of 5:45 AM ET, Monday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, will likely open in the upper part of a positively skewed overnight inventory, inside 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.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,673.25 untested point of control (VPOC) puts in play the $4,695.25 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,711.75 all-time high and $4,735.25 Fibonacci, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,673.25 VPOC puts in play the $4,647.25 VPOC. Initiative trade beyond the $4,647.25 VPOC could reach as low as the $4,619.00 VPOC and $4,590.00 balance area boundary (BAH), or lower. 

As an aside, participants reclaimed the volume-weighted average price (VWAP) anchored from the all-time high and recent Federal Open Market Committee (FOMC) meeting. 

This is a metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

Further, given that this development suggests the average buyer, since the all-time high, is in a winning position, who does this dynamic embolden? The buyer or seller?

Click here to load today’s updated key levels into the web-based TradingView charting platform. Note that all levels are derived using the 65-minute timeframe. New links are produced, daily.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Learn about the profile.

What People Are Saying

Definitions

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

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

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.

Options Expiration (OPEX): Traditionally, 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) and the reduction dealer gamma exposure. In recent history, this reset in dealer positioning has been front-run; prior, there was an increase in volatility after the removal of large options positions and associated hedging.

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

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.

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 Benzinga finance and technology reporter interviewing the likes of Shark Tank’s Kevin O’Leary, JC2 Ventures’ John Chambers, and ARK Invest’s Catherine Wood, as well as a SpotGamma contributor, developing insights around impactful options market dynamics.

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 November 5, 2021

Abstract

Equity index futures higher. Commodities were higher. Bonds mixed. Volatility compressed.

Ahead is a heavier day of economic releases, in the face of fundamental narratives and positioning metrics that may support intraday price stability.

What Happened

Overnight, equity index futures were marked up ahead of the House’s plan to vote on President Joe Biden’s economic package and infrastructure, as well as October jobs data.

Also, in the news, there were narratives surrounding China’s dollar surplus, a pandemic resurgence in Europe, Pfizer Inc’s (NYSE: PFE) development of a pill for COVID-19.

Ahead is data on payrolls, unemployment, and average hourly earnings (8:30 AM ET), as well as consumer credit (3:00 PM ET). I apologize as this is what I listed yesterday, mistakenly.

Graphic updated 6:30 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. Learn the implications of volatility, direction, and moneyness. 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

On weak intraday breadth and lackluster market liquidity metrics, the best case outcome occurred, evidenced by balanced trade at newly discovered S&P 500 prices.

As also evidenced by the separation of value, overnight, the gap out of yesterday’s range marks a potential willingness to continue the uptrend.

To note, poor structure left behind prior initiative trade adds to technical instability, a dynamic mentioned in prior commentaries. Participants will likely look to check old value (i.e., revisit, repair, and strengthen) pockets of low-volume, feverishly, on any breakdown of trend.

Graphic: Flat delta (i.e., non-committed buying/selling 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), via Bookmap. The readings are supportive of responsive trade (i.e., rotational trade that suggests current prices offered favorable entry and exit).

Context: The aforementioned trade is happening in the context of a slowdown in economic growth, increased clarity on the Federal Reserve’s (Fed) intent to moderate stimulus, as well as the prospects of renewed fiscal support.

The implications of these narratives on price are contradictory.

To elaborate, supply chain disruptions slowed the pace of economic growth, while participants saw both the Fed’s decision to taper and keep rates unchanged, as well as the potential passage of President Biden’s economic plan, today, as near-term positives.

In terms of positioning, the CBOE Volatility Index (INDEX: VIX) was lower, while supply came in across the VIX futures term structure. That, alongside the long-gamma environment and increased demand for options above current prices (i.e., bets on the upside), points to increased odds of near-term equity market stability.

To quote options analysis and data provider SpotGamma, “​​the term structure of IV (this is how high the IV is for longer-dated options) remains elevated. That suggests near term options could have more ‘bleed’ which could keep the SPX market price tailwind intact.”

Expectations: As of 6:30 AM ET, Friday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, will likely open in the upper part of a positively skewed overnight inventory, 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.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,663.00 untested point of control (VPOC) puts in play the $4,684.25 overnight high (ONH). Initiative trade beyond the ONH could reach as high as the $4,705.25 and $4,725.50 Fibonacci, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,663.00 VPOC puts in play the $4,619.00 VPOC. Initiative trade beyond the VPOC could reach as low as the $4,590.00 balance boundary and $4,574.25 high volume area (HVNode), or lower.

Click here to load today’s updated key levels into the web-based TradingView charting platform. Note that all levels are derived using the 65-minute timeframe. New links are produced, daily.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Learn about the profile.

Charts To Watch

Graphic: (NASDAQ: AMZN). (S~3403, R~3580). S is for support. R is for resistance. I am seeking to initiate short-duration call structures against the 3580 gap fill and prior all-time high. Will initiate for credit or finance with put structures.
Graphic: (NASDAQ: FB). (S~326.45, R~336.90). S is for support. R is for resistance. If the stock was to maintain prices above 336.90, there is a potential change in tone. In such a case, I’m targeting Fibonacci retracements with call structures financed with credits on the put side.
Graphic: (NASDAQ: GOOGL). (S~2900, R~3113). S is for support. R is for resistance. I’m targeting prices between 3000 and 3100 with call structures for low cost or credit.
Graphic: (NYSE: SHOP). (S~1482, R~1650). S is for support. R is for resistance. Potential break of trend, move to an all-time high.
Graphic: (NYSE: IWM). (S~234.53, R~241.96, 251.41). S is for support. R is for resistance. Russell 2000 breaks out of balance. In my opinion, upon acceptance, there are potential opportunities for long trades.

Other charts I’m watching include BABA (S~155.29), ZM (S~245.92), ARKK (S~120.15), PINS (S~42.06), Z (S~58.15), BBY (S~123.65), GOOS (S~40.91), CTSH (R~82.00), LYFT (S~44.41), TMUS (S~118.00), WDC (51.47). S is for support. R is for resistance. 

What People Are Saying

Definitions

Cave-Fill Process: Widened the area deemed favorable to transact at by an increased share of participants. This is a good development.

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

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

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

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.

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.

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.

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 Benzinga finance and technology reporter interviewing the likes of Shark Tank’s Kevin O’Leary, JC2 Ventures’ John Chambers, and ARK Invest’s Catherine Wood, as well as a SpotGamma contributor, developing insights around impactful options market dynamics.

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 November 4, 2021

Abstract

Equity index futures higher. Commodities were mostly higher. Bonds mixed. Volatility compressed.

Ahead is a heavier day of economic releases, in the face of fundamental narratives and positioning metrics that support intraday price stability.

What Happened

Overnight, equity index futures auctioned sideways to higher alongside the Federal Open Market Committee’s decision to taper bond buying and hold rate hikes.

Ahead is data on nonfarm payrolls, unemployment rate, and average hourly earnings (8:30 AM ET), as well as consumer credit (3:00 PM ET).

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. 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. Learn the implications of volatility, direction, and moneyness. 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

Action: On supportive intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by a spike away from an area of balanced, sideways trade in S&P 500 (INDEX: SPX) (ETF: SPY) (FUTURE: /ES).

Intent: As also evidenced by the separation of value (i.e., the area where 70% of the day’s trade occurred), the spike marks a potential willingness to continue the trend.

Validation: Continued sideways to higher trade, above the $4,627.00 level (a prior all-time high), validates the market’s prevailing intent to markup in the face of new information.

Consideration: Poor structure left behind prior initiative trade (as evidenced by the presence of numerous gaps and p-shaped emotional, multiple-distribution profile structures which denote short-covering and a lack of material, new-money buying) adds to technical instability.

This is a remark, which has been made in the last several commentaries, remains valid; post-FOMC, should the market crack, participants will likely look to check old value (i.e., revisit, repair, and strengthen) these pockets of low-volume, feverishly.

Graphic: Supportive delta (i.e., committed buying as measured by volume delta or buying and selling power as calculated by the difference in volume traded at the bid and offer) in SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index, via Bookmap. The readings are supportive of initiative trade (i.e., directional trade that suggests old prices were not favorable to entry and exit; the market is not in balance).

Context: The aforementioned trade is happening in the context of the FOMC’s decision to taper bond purchases and not raise interest rates.

The implications of this are, as evidenced by a near-vertical price rise, seen as positive. 

To elaborate, Bloomberg’s John Authers writes: “In 2013, the bond market threw a tantrum at the mere mention of a taper. Real financial conditions had sharply tightened before the Fed could eventually start withdrawing stimulus. This time, real yields are no higher than they were on New Year’s Day. People are still prepared to lend money to the government on the assumption that they will get a return a full percentage point below the inflation rate.”

On the topic of interest rates, “the Fed will warn us in advance – which in effect means that a rate rise should be penciled in for next July’s meeting, or June at the earliest.”

Graphic: Per Bloomberg, “Last week saw a dramatic flattening, in an implicit bet that the Fed was going to hike rates in the near term, and choke off growth in the longer term. The curve had already started to steepen by the end of last week, and it regained more ground after the Federal Open Market Committee and Jerome Powell’s press conference.”

In terms of positioning, the CBOE Volatility Index (INDEX: VIX) was lower, while the VIX futures term structure came in a bit. To put it simply, participants were assuaged of their fears; the post-FOMC compression in volatility plays into an end-of-year, seasonally-aligned, rally supported by the flows typically associated with decaying, options hedges, according to SpotGamma.

Graphic: Goldman Sachs Group (NYSE: GS) charts S&P 500 seasonality. Taken from The Market Ear.

Expectations: As of 6:30 AM ET, Thursday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, will likely open near the middle part of a positively skewed overnight inventory, just outside of prior-range and -value, suggesting a potential for directional opportunity.

Spike Scenarios Apply: Spikes 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). The spike reference to go by is $4,627.00, a prior all-time high.

In the best case, the S&P 500 trades sideways or higher; activity above the $4,652.25 high volume area (HVNode) puts in play the $4,662.75 overnight high (ONH). Initiative trade beyond the ONH could reach as high as the $4,672.50 and $4,705.25 Fibonacci, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,652.25 HVNode puts in play the $4,619.00 untested point of control (VPOC). Initiative trade beyond the VPOC could reach as low as the $4,590.00 balance area high (BAH) and $4,574.25 HVNode, or lower.

Click here to load today’s updated key levels into the web-based TradingView charting platform. Note that all levels are derived using the 65-minute timeframe. New links are produced, daily.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Learn about the profile.

What People Are Saying

Definitions

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

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

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

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

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.

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 Benzinga finance and technology reporter interviewing the likes of Shark Tank’s Kevin O’Leary, JC2 Ventures’ John Chambers, and ARK Invest’s Catherine Wood, as well as a SpotGamma contributor, developing insights around impactful options market dynamics.

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.

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Commentary

Daily Brief For November 3, 2021

Abstract

Equity index futures and commodities were mixed. Bonds sideways to higher. Volatility bid.

Ahead is a heavy day of economic releases, in the face of fundamental narratives and positioning metrics that may later support directional resolve.

What Happened

Overnight, equity index futures were flat as participants wait to initiate the next leg – higher or lower – until they are provided clarity on monetary policy frameworks, the pace of the economic recovery, and the like.

Ahead is ADP employment (8:15 AM ET), Markit services PMI (9:45 AM ET), ISM services index and factory orders (10:00 AM ET), as well as Federal Reserve statements (2:00 PM ET).

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. 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. Learn the implications of volatility, direction, and moneyness. 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

Action: On lackluster breadth and market liquidity metrics, the best case outcome occurred, evidenced by participants’ exploration of new prices in the S&P 500.

Intent: The intraday excess high marks potential exhaustion (or willingness to end trend). Also, the rounding of the composite profile (i.e., developing ledge) suggests participants are either painting themselves into a corner or there is a lack of conviction to take price higher.

Validation: Sideways trade, above the $4,590.00 balance area high (BAH), and overlapping value areas, validates the market’s intent to pause ahead of new information.

Consideration: Poor structure left behind prior initiative trade (as evidenced by the presence of numerous gaps and p-shaped emotional, multiple-distribution profile structures which denote short-covering and a lack of material, new-money buying) adds to technical instability.

Should the market crack, participants will likely look to check old value (i.e., revisit, repair, and strengthen) these pockets of low-volume. This is called the “cave-fill” process, in volume profile terms.

Graphic: Flat 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 (i.e., rotational trade that suggests current prices offer favorable entry and exit; the market is in balance).

Context: Federal Open Market Committee (FOMC) announcement later today.

The announcement will provide participants with color on the economic recovery and the Federal Reserve’s intent to continue supporting the economy, at the rate it has. 

Nordea’s Andreas Steno Larsen states: “Jay Powell will have to walk on eggshells to prevent an acceleration of the front-end of the USD yield curve. Arguments for the Fed to tighten policy keep piling up and hence we see a swift tapering process (30B a meeting) and a first hike in June.” 

“The combination of 1) even higher inflation prints during Q4 (with several extremely volatile base effects), 2) a removal of USD liquidity, 3) a historically weak credit impulse into 2022 (due to a massive credit expansion 20/21) sounds like the perfect flattener setup to us,” which may weigh on sentiment and long term investments.

Graphic: “Keep flattening the yield curve during tapering,” via Nordea.

In terms of positioning, the CBOE Volatility Index (INDEX: VIX) was a touch higher, while spreads across the VIX futures term structure widened with demand coming in at the front.

Such a situation, as touched on yesterday, in addition to the long-gamma environment (in which counterparties hedge their warehoused options risk by buying underlying into weakness and selling into strength), has the effect of making it difficult to resolve directionally.

The reasons are: (1) options will slide down their term structure (vanna) and (2) skew decays (charm). When this happens, we expect to see supportive flows as dealers cover their short equity/futures hedges. 

With volatility bid, the effect of vanna and charm is dulled. As a result, it is likely that participants see more movement after the FOMC announcement.

To note, the potential for upside resolve comes down to how participants take the FOMC announcement. We know that, according to SpotGamma, there is increased capital being committed to higher and higher options strikes, a development often seen as bullish.

Expectations: As of 6:30 AM ET, Wednesday’s regular session (9:30 AM – 4:00 PM ET), in the S&P 500, will likely open in the middle part of a neutral overnight inventory, inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

Balance (Two-Timeframe Or Bracket) Is The Status Quo: Rotational trade that denotes current prices offer favorable entry and exit. Modus operandi is responsive trade (i.e., fade the edges), rather than initiative trade (i.e., play the break).

In the best case, the S&P 500 trades sideways or higher; activity above the $4,620.25 high volume area (HVNode) pivot puts in play the $4,628.50 Fibonacci extension. Initiative trade beyond $4,628.50 could reach the $4,639.00 and $4,664.75 Fibonacci levels, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,620.25 HVNode puts in play the $4,590.00 balance area high (BAH). Initiative trade beyond the BAH could reach as low as the $4,574.25 HVNode and $4,551.75 low volume area (LVNode), or lower.

Click here to load today’s updated key levels into the web-based TradingView charting platform. Note that all levels are derived using the 65-minute timeframe. New links are produced, daily.
Graphic: 65-minute profile chart of the Micro E-mini S&P 500 Futures. Learn about the profile.

What People Are Saying

Definitions

Cave-Fill Process: Widened the area deemed favorable to transact at by an increased share of participants. This is a good development.

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.

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.

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).

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.

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 Benzinga finance and technology reporter interviewing the likes of Shark Tank’s Kevin O’Leary, JC2 Ventures’ John Chambers, and ARK Invest’s Catherine Wood, as well as a SpotGamma contributor, developing insights around impactful options market dynamics.

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.

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Commentary

Daily Brief For October 22, 2021

Editor’s Note: Due to travel commitments, the Daily Brief will not be sent 10/25-10/27.

Apologies and have a great weekend!

Market Commentary

Out of sync with bonds, equity index futures were mostly sideways to higher. Commodities were higher. Volatility compressed.

  • Ahead is manufacturing, services PMI.
  • Participants discover uncharted prices.
  • Options positioning presented tailwind.

What Happened: U.S. stock index futures, less the Nasdaq 100, auctioned sideways to higher overnight as participants looked to discover new prices.

Ahead is data on manufacturing and services PMI (9:45 AM ET), as well as Fed-speak (10:00 and 11:00 AM ET).

Graphic updated 6:40 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 on a small gap, just 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.

During the prior day’s regular trade, on light volume, nonparticipatory intraday breadth, and supportive market liquidity metrics, the best case outcome occurred, evidenced by upside resolve, above flattened day timeframe profile structures, or ledges.

This activity comes after prior sessions left behind numerous gaps and emotional, multiple-distribution profile structures.

Further, Thursday’s overnight gap in range, below value, set indices up for what is called the cave-fill process (characterized by repair and strengthening of low volume areas).

The day timeframe activity rejected lower prices; participants auctioned to new highs in both regular and overnight trade, putting in play a recovery of the un-adjusted overnight high (ONH) at $4,550.00.

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

Zooming out, we see that though the Nasdaq 100 firmed this week, it did not recover as much ground as its peers, the S&P 500 and Dow Jones Industrial Average, both of which are trading at or above their all-time high figures. 

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.

This recovery has been swift and built on relatively poor – low volume – structures that ought to offer minimal support; what this simply means is that higher prices need validation.

Note: Value is defined by where 70% of the day’s trade happened, the bulk of where volume is. 

Think of the absence of high volume structures, on the way up, leaving no value to base off of. If prices are followed by value, that means that they are supported. If there is an open above (below) value, a market will auction lower (higher) in search of buyers (sellers). After auctioning too far from value, the response by higher timeframe participants will introduce single-print buying and selling tails as those participants look to take advantage of higher (lower) prices to sell (buy). 

Please read this excerpt from Mind Over Markets, for additional context.

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

In terms of positioning, the CBOE Volatility Index (INDEX: VIX) was lower, while the VIX futures term structure settled in contango; supply at the front end of the curve, alongside the long-gamma environment, signals a potential for near-term equity market stability.

According to SpotGamma analyses, this is where the so-called vanna (i.e., inflows as a result of options sliding down their term structure) dynamic comes to dominate. Adding, we look for increased interest in options strikes that are higher in price and further out in time.

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 $4,525.00 untested point of control (VPOC) puts in play the $4,550.00 overnight high (ONH). Initiative trade beyond the ONH could reach as high as the $4,568.25 and $4,589.75 Fibonacci extensions, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,525.00 VPOC puts in play the $4,510.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as low as the $4,495.75 high volume area (HVNode) and $4,471.00 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.

Definitions

Cave-Fill Process: Widened the area deemed favorable to transact at by an increased share of participants. This is a good development.

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

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

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

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

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.

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

Volume-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.

News And Analysis

U.K. consumer confidence falls amidst cheerless news.

Growth digitalization of finance intensifying competition.

Supply issues could haunt the holidays after sales rise.

Substantial progress toward Fed’s mandates. Tapering?

Think everything’s expensive now? Wait there is more.

Big jump in home sales – impressive considering supply.

Biden: U.S. would defend Taiwan from attack by China.

Online wager, engagement key to sports betting growth.

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.

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Commentary

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 renato@physikinvest.com. 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.

Definitions

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

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

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

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.

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Commentary

Daily Brief For October 14, 2021

Update: This morning’s 7:55 AM ET release of the newsletter failed to include updated S&P 500 levels in the very first graphic, below. That graphic has been updated, now. Sorry!

Market Commentary

Equity index, commodity, bond futures trade sideways to higher. Volatility ebbs.

  • Consumer prices rose. Taper in play.
  • Ahead: Claims, PPI data, Fed speak.

What Happened: After news that consumer prices rose more than expected, alongside the release of Federal Open Market Committee (FOMC) minutes which revealed an intent to taper asset purchases, U.S. stock index futures auctioned higher.

Ahead is data on jobless claims and the producer price index (8:30 AM ET). After is Fed-speak by Lorie Logan (12:00 PM ET), Tom Barkin (1:00 PM ET), and Patrick Harker (6:00 PM ET).

Graphic updated 6:30 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. 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, Thursday’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 positive 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, participants took back Monday’s spike and weak close. 

The activity now puts in play the minimal excess high just short of the $4,408.75 low volume area (LVNode), as well as the $4,415.00 untested point of control (VPOC), two areas where initiative buyers were unable to counter the fading momentum from short covering.

Looking across the spectrum, the Nasdaq 100 and Russell 2000 are firming, relative to the S&P 500 and Dow Jones Industrial Average, two indices that held the relative strength mantle, prior. 

This rotation, if we will, may support sideways-to-higher trade in the coming sessions as participants clash head-on with the 50.00% and 61.80% Fibonacci retracements, levels that overlap key anchored volume-weighted average price (AVWAP) levels.

Note: VWAP is a metric highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs. We look to buy above a flat/rising VWAP pinch. Sell below a flat/declining VWAP pinch.
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 weakness into a seasonally bullish cycle of rebalancing and earnings. 

Some risks include the prospects of tapering off asset purchases, next month, alongside dangerous inflation pressures, as indicated by minutes from the FOMC meeting last month.

“Markets took the hint. Two-year yields are their highest since March last year, when the pandemic first hit,” said Bloomberg’s John Authers. “Meanwhile, the 10-year yield retreated from an approach toward its post-pandemic high. The two-year reflects the now-strong likelihood that the Fed will raise rates within the next two years; the 10-year reflects concerns about growth.” 

In terms of positioning, conditions may be supportive. 

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 $4,381.25 LVNode puts in play the $4,393.75 high volume area (HVNode). Initiative trade beyond the HVNode could reach as high as the $4,415.00 VPOC and $4,437.75 micro composite point of control (MCPOC), or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,381.25 LVNode puts in play the $4,360.25 LVNode. Initiative trade beyond the $4,360.25 LVNode could reach as low as the $4,349.00 VPOC and $4,330.25 LVNode, 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.

Definitions

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

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

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

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

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

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

News And Analysis

Consumer prices rise more than expected as energy costs surge.

Global minimum tax pact ups the chance of multinational tax hike.

Global gas crisis is spilling over into the oil markets, IEA explains.

China’s power cuts stressing economic growth and supply chains.

Federal Reserve officials seeing mid-November, December taper.

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.

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Commentary

Daily Brief For October 13, 2021

Editor’s Note: Tuesday’s newsletter tested a new feature to view real-time charts with key levels. From here on out, links to an updated layouts page will be found in the What To Expect section, below. Thanks!

Market Commentary

Equity index futures trade sideways to higher with bonds. Commodities were mixed.

  • Initiative sellers fail to expand the range.
  • Ahead is CPI, FOMC minutes, earnings.

What Happened: U.S. stock index futures auctioned sideways to higher ahead of data that would shed light on inflation and earnings.

Ahead is data on the Consumer Price Index (8:30 AM ET), FOMC minutes (2:00 PM ET), as well as Fed-speak (4:30 and 8:00 PM ET).

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) calculations are based on where the prior day’s reading falls with respect to the MAX and MIN of all occurrences available. A higher DIX is bullish. At the same time, the lower the GEX, the more (expected) volatility. SHIFT data used for S&P 500 (INDEX: SPX) options activity. Note that options flow is sorted by the call premium spent; if more positive then more was spent on call options. Breadth reflects a reading of the prior day’s NYSE Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index (INDEX: VIX) from 0-100.

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

Adding, during the prior day’s regular trade, on positive intraday breadth and divergent market liquidity metrics, the worst-case outcome occurred, evidenced by another spike or knee-jerk, end-of-day move, after initiative buyers lacked the conviction to push for excess.

Graphic: Divergent delta (i.e., non-committed selling 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).

Overnight exploration failed to provide validation of the spike; indices recovered the area where two-sided trade was most prevalent in Tuesday’s regular session.

Combining the activity over the past couple of sessions, we see an inability – on the part of sellers – to expand the range and value (i.e., the area where 70% of the day’s volume occurred). Trading above $4,360.00 in the S&P 500 invalidates Monday’s spike, likely forcing those short-term participants who sold the break to cover.

Further, the aforementioned trade is happening in the context of a seasonal cycle of rebalancing and earnings, improvement among some positioning metrics, among other things. 

Though these themes support (1) October volatility and (3) an increased potential for sideways to higher trade, some risks exist.

Nordea summarizes it well: “The combination of higher inflation risks and weaker activity data makes the near-term market outlook uncertain. We see more hawkish central banks, higher bond yields, and a stronger USD ahead.”

At the same time, according to a summary put out by The Market Ear, TS Lombard sees (1) China’s economic slowdown spilling over, (2) consumer confidence weakening amidst a bump in inflation expectations, (3) persistent inflationary pressures hastening the global monetary tightening, and (4) COVID-19 mutations leading to renewed lockdowns.

Graphic: Performance of the broad high-yield real estate sector in China, via Bloomberg.
Graphic: TS Lombard visualizes its estimates for slower growth, via The Market Ear.

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 $4,346.75 high volume area (HVNode) pivot puts in play the $4,369.00 untested point of control (VPOC). Initiative trade beyond the VPOC could reach as high as the $4,381.25 low volume area (LVNode) and $4,415.00 VPOC, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,346.75 HVNode pivot puts in play the $4,330.25 LVNode. Initiative trade beyond the LVNode could reach as low as the $4,299.00 VPOC and $4,278.00 HVNode, 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.

Definitions

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

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

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

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

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

News And Analysis

Half of all delinquent homeowners have missed six payments.

China credit growth slows amid property, Evergrande troubles.

JPMorgan smashing estimates on M&A, wealth management.

Low vaccination rates exacerbate America’s caregiving crisis.

Apple finally fell victim to the never-ending supply chain crisis.

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.

Subscribe
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Commentary

Daily Brief For October 12, 2021

Market Commentary

Equity index futures recover after Monday’s liquidation and brief overnight follow-through. Commodities were mixed and bonds were sideways to higher.

  • Market positioning for an EOY rally?
  • Ahead: Job openings, inflation data.
  • New feature to view real-time levels.

What Happened: U.S. stock index futures recover from earlier bearishness, absent impactful fundamental narratives.

Ahead is data on the job openings (10:00 AM ET) and the median expected 3-year inflation rate (11:00 AM ET). 

Graphic updated 6:30 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /ES levels are derived from the profile graphic at the bottom of the following section. SqueezeMetrics Dark Pool Index (DIX) and Gamma (GEX) calculations are based on where the prior day’s reading falls with respect to the MAX and MIN of all occurrences available. A higher DIX is bullish. At the same time, the lower the GEX, the more (expected) volatility. SHIFT data used for S&P 500 (INDEX: SPX) options activity. Note that options flow is sorted by the call premium spent; if more positive then more was spent on call options. Breadth reflects a reading of the prior day’s NYSE Advance/Decline indicator. VIX reflects a current reading of the CBOE Volatility Index (INDEX: VIX) from 0-100.

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

This comes after a volatile Monday.

At the outset, initiative sellers painted themselves into a corner at the convergence of the $4,363.25 high volume area (HVNode) pivot and an anchored volume-weighted average price.

Note: Liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs, a metric highly regarded by chief investment officers, among others, for quality of trade.

After participants failed to muster the wherewithal to take prices lower, the S&P 500 then endured a rapid short-covering rally intraday – as evidenced by emotional, multiple distribution profile structures – before the momentum from covering shorts faded.

Thereafter, the S&P 500 liquidated, leaving behind a minimal excess high just south of the $4,408.75 low volume area (LVNode) and $4,415.00 untested point of control (VPOC).

Despite the spike and weak close, there was a minimal separation in value (i.e., the area where 70% of the day’s volume occurred); in other words, though participants valued lower prices, the knee-jerk, end-of-day move was not validated by increased trade at lower price levels.

Overnight exploration provided that validation before a massive change in tone after about 2:00 AM ET. Thereafter, indices recovered the prior day’s close.

Graphic: Divergent delta (i.e., non-committed selling 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).

Further, the aforementioned trade is happening in the context of a seasonal cycle of rebalancing and earnings, improvement among some positioning metrics, among other things. 

These themes support (1) October volatility and (2) an increased potential for sideways to higher trade.

In support is JPMorgan Chase & Co’s (NYSE: JPM) Marko Kolanovic, a big stock market bull; “We believe that this was the last significant wave, and an effective end to the pandemic,” he said.

Kolanovic prefers economically sensitive shares over technology and growth stocks. 

In opposition is Morgan Stanley’s (NYSE: MS) Mike Wilson who is on the side of pressured earnings, as a result of higher labor and material costs.

“Higher rates and a stronger USD have led to multiple compression, a process that remains unfinished, in our view,” he said in a note featured by The Market Ear. “Whether the final chapter of the mid-cycle transition ends with a 10% or 20% correction in the S&P 500 will be determined by how much earnings growth decelerates or has to outright decline (i.e., the Ice). We are gaining confidence in a sharper deceleration but the timing is more uncertain.”

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 $4,346.75 HVNode invalidates Monday’s spike lower and puts in play the $4,363.25 HVNode. Initiative trade beyond the $4,363.25 HVNode could reach as high as the $4,381.25 LVNode and $4,415.00 VPOC, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,346.75 HVNode puts in play the $4,330.25 LVNode. Initiative trade beyond the LVNode could reach as low as the $4,299.00 VPOC and $4,278.00 HVNode, or lower.

Click here to load today’s 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.

Definitions

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

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

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

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).

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

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

News And Analysis

JPMorgan’s Kolanovic says stocks can handle $130 oil.

Chinese developers are faced with cuts to credit ratings.

Federal Reserve will wimp out on hikes despite inflation.

Evergrande skips 3rd round of bond coupon payments.

More clarity on inflation doesn’t mean the news is good.

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.

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