Categories
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.

Categories
Commentary

Daily Brief For October 21, 2021

Market Commentary

In sync with bonds, equity index futures were sideways to lower. Commodities were mixed. Volatility expanded lightly.

  • Ahead is jobless claims data and more.
  • Many companies surpass expectations.
  • Positioned for sideways trade, balance.

What Happened: U.S. stock index futures auctioned sideways to lower overnight alongside news that among the S&P 500 companies that have disclosed their corporate results, 84% have posted earnings that surpassed expectations.

Ahead is jobless claims and Philadelphia Fed manufacturing (8:30 AM ET) data, Fed speak (9:00 AM ET), as well as existing home sales and leading economic indicators (10:00 AM ET) updates.

Graphic updated 6:45 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. 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 on a light gap, just inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity. 

Adding, during the prior day’s regular trade, in the face of strong intraday breadth and divergent market liquidity metrics, equity indices – specifically the S&P 500 – had a tough time expanding the range to the upside, leaving a ledge, or flattened area on the intraday profile.

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

Thursday’s gap in range, below value, sets up indices for what is called the cave-fill process.

It’s highly likely that participants will look to revisit, repair, and strengthen areas of low volume (LVNodes).

Graphic: Divergent delta (i.e., mostly 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 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.

Given where the indices are in relation to their anchored volume-weighted average price levels (VWAPs), the average buyer, since the all-time high, holds a winning position

Sideways-to-higher trade, above the upward sloping trendline, as well as the 50.00% and 61.8% retracements, keeps in play a recovery of the all-time high in the S&P 500, Nasdaq 100, and Russell 2000, like the Dow Jones Industrial Average.

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.

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 slightly higher, after the October 20 expiration, while the VIX futures term structure shows a bit of demand coming in at the front end of the curve. 

These conditions – coupled with the long-gamma environment and suppression in realized volatility as the S&P 500 trades around $4,510.00, a figure in the vicinity of what options modeling platform SpotGamma calls a Call Wall (i.e., level at which positive options gamma, essentially delta sensitivity to the underlying price, is highest) – point to increased odds of near-term equity market stability, and some potential for back-filling.

Should participants increase their interest in options strikes that are higher in price and further out in time, they may be able to overcome the stickiness of the $4,500.00 S&P 500 area (the direct result of associated hedging pressures, and the like).

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 $4,510.00 low volume area (LVNode) pivot puts in play the $4,526.25 high volume area (HVNode). Initiative trade beyond the $4,526.25 HVNode could reach as high as the $4,550.00 overnight high (ONH) and $4,568.25 Fibonacci extension, or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,510.00 LVNode puts in play the $4,495.75 HVNode. Initiative trade beyond the $4,495.75 HVNode could reach as low as the $4,471.00 untested point of control (VPOC) and $4,437.75 micro composite point of control (MCPOC), 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.

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.

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.

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).

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).

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.

News And Analysis

COVID-19 Impacts: A market-implied probability of default perspective.

The Pfizer-BioNTech booster shot restores full coronavirus protections.

Evergrande shares plunging as deal talks end, sales sink nearly 100%.

China’s common prosperity agenda is risky near-term, okay long-term.

Consumer gut on inflation is wrong. That’s a Federal Reserve problem.

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. 

Additionally, Capelj is a finance and technology reporter. Some of his biggest works include interviews with leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.

Disclaimer

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

Categories
Commentary

Daily Brief For October 20, 2021

Market Commentary

Mostly in sync with bonds and commodities, equity index futures were mixed. Volatility compressed, further.

  • Ahead: Fed speak and the Beige Book.
  • Monetary uncertainty. Earnings pick up.
  • Options positioning may support prices.

What Happened: The pace of markup in the equity indices slowed as participants await key earnings, as well as updates on monetary and fiscal policy. 

Ahead is Fed-speak by Evans, Bullard, Bostic, Kashkari, and Quarles (12:00 and 1:00 PM ET), as well as a release of the Beige Book (2:00 PM ET). Tonight, also, Fed President Daly speaks (8:35 PM ET).

Graphic updated 6:45 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. 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 6:40 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.

Status Quo Is Balance: Rotational trade that denotes current prices offering favorable entry and exit. Modus operandi is responsive trade (i.e., fade the edges), rather than initiative trade (i.e., play the break), coming into today’s session.

Adding, during the prior day’s regular trade, on supportive intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by initiative buying and separation of value.

Coupled with that dynamic, in carrying forward the narrative from days prior, is the sustained presence of numerous gaps and p-shaped emotional, multiple-distribution profile structures (i.e., old-money shorts covering).

Participants will likely look to revisit, repair, and strengthen – build out areas of high volume (HVNodes) via the cave-fill process – these areas of low volume (LVNodes), later.

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 the initiative trade or markup in price.

Zooming out, we see the Nasdaq 100 trading strong, relative to its peers. 

Given where the S&P 500’s price is in relation to the yellow anchored volume-weighted average price (VWAP), below, the average buyer, since the all-time high, holds a winning position; sideways-to-higher trade, above the upward sloping trendline, as well as the 50.00% and 61.8% retracements, likely puts in play a recovery of the all-time high.

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.

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 was unchanged; supply at the front end of the curve, alongside the long-gamma environment, signals a potential for near-term equity market stability.

With this decline in implied volatility (a dynamic that, at least in recent history, leads into increased call selling, more dealer hedging and liquidity, as well as further realized volatility suppression), the S&P 500 found itself marked up to the key $4,510.00 low volume area (LVNode)

The $4,510.00 figure is in the vicinity of what options modeling platform SpotGamma calls a Call Wall (i.e., the level at which positive options gamma, essentially delta sensitivity to the underlying price, is highest), which is a near term magnet (and resistance) given associated hedging and a failure to see increased interest and activity in higher options strikes.

Moreover, we’re carrying forward yesterday’s price levels; 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 $4,495.75 high volume area (HVNode) puts in play the $4,510.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,526.25 HVNode and $4,550.00 overnight high (ONH), or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,495.75 HVNode puts in play the $4,471.00 untested point of control (VPOC). Initiative trade beyond the VPOC could reach as low as the $4,437.75 micro composite point of control (MCPOC) and $4,393.75 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 6:40 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.

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.

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.

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.

News And Analysis

A combination of lower growth, higher inflation isn’t good.

Sentiment in neutral territory, supporting high index price.

Cryptocurrency versus gold – debating on store of value.

Who could be the winners and losers of the energy crisis?

Feeling the strain of supply chain issues and high prices.

Global oil refiners cranking up output as margins recover.

Democrats are looking to break stalemate on Biden plan.

Bitcoin futures ETF starts as second-highest traded fund.

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. 

Additionally, Capelj is a finance and technology reporter. Some of his biggest works include interviews with leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.

Disclaimer

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

Categories
Commentary

Daily Brief For October 19, 2021

Market Commentary

Out sync with bonds, equity index futures and commodities traded higher. Volatility compressed.

  • Monetary uncertainty. Earnings pick up.
  • Options positioning may support prices.
  • Ahead: Building permits, housing starts.

What Happened: U.S. stock index futures auctioned sideways to higher overnight as participants sought to price in robust earnings against the backdrop of monetary uncertainty and increased pricing pressures. 

“The world is watching interest rates more closely than it has for some time — and rightly so, the moves have been emphatic, especially in the short-term maturities,” Chris Weston, head of research at Pepperstone Financial Pty, said. He added it’s “impressive how resilient and calm markets are in the face of the rates repricing.”

Ahead is data on building permits and housing starts (8:30 AM 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. 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, Tuesday’s regular session (9:30 AM – 4:00 PM EST) in the S&P 500 will likely open outside of prior-range and -value, suggesting 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 non participatory intraday breadth and supportive market liquidity metrics, the best case outcome occurred, evidenced by a response at the $4,437.75 micro composite point of control (MCPOC), which carried into initiative buying, past the $4,469.75 overnight high (ONH).

Coupled with that dynamic is the sustained presence of numerous gaps and p-shaped emotional, multiple-distribution profile structures (i.e., old-money shorts covering); as a result, participants will likely look to revisit, repair, and strengthen – build out areas of high volume (HVNodes) via the cave-fill process – these areas of low volume (LVNodes).

Graphic: Mostly 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 support this recent leg of initiative trade.

Zooming out, we see the Nasdaq 100 trading relatively strong.

Given where the S&P 500’s price is in relation to the yellow anchored volume-weighted average price (VWAP), below, the average buyer, since the all-time high, holds a winning position; sideways-to-higher trade, above the upward sloping trendline, as well as the 50.00% and 61.8% retracements, likely puts in play a recovery of the all-time high.

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.

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 remained 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, participants were likely selling puts into yesterday’s price rise; this dynamic may support sideways to higher trade.

In a barebones overview of some of the dynamics at play, here, if implied volatility were to rise, the counterparty to the aforementioned trade would purchase stock (long delta) to hedge their rising long put (short delta) exposure. If implied volatility were to decline, the counterparty would likely sell stock (short delta) as their long put (short delta) exposure declines.

Pictured: SqueezeMetrics highlights implications of volatility, direction, and moneyness.

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 $4,495.75 high volume area (HVNode) puts in play the $4,510.00 low volume area (LVNode). Initiative trade beyond the LVNode could reach as high as the $4,526.25 HVNode and $4,550.00 overnight high (ONH), or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,495.75 HVNode puts in play the $4,471.00 untested point of control (VPOC). Initiative trade beyond the VPOC could reach as low as the $4,437.75 micro composite point of control (MCPOC) and $4,393.75 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 6:20 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.

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

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.

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.

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

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

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

Nordea: Is permanent inflation now an alarming consensus?

Evergrande unit has remit funds to pay yuan bond coupon.

China’s central bank should cut RRR, one adviser suggests.

World facing fiscal problems much worse than from COVID.

Investing prosperously in light of China’s common prosperity.

Bitcoin pushes toward record before debut of ETF products.

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. 

Additionally, Capelj is a finance and technology reporter. Some of his biggest works include interviews with leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.

Disclaimer

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

Categories
Commentary

Daily Brief For October 18, 2021

Market Commentary

In sync with bonds, equity index futures were sideways to lower, overnight. Commodities were mixed. Volatility expanded.

  • More support for an EOY run-up.
  • Ahead is a light day for releases.
  • Positioned for sideways balance.

What Happened: U.S. stock index futures auctioned sideways to lower overnight alongside conflicting narratives.

Ahead is data on industrial production and capacity utilization (9:15 AM ET), as well as the National Association of Home Builders Index (10:00 AM ET).

Graphic updated 6:00 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. Sentiment Risk-On if expected /ES open is above the prior day’s range. Sentiment Risk-Off if expected /ES open is below 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 6:00 AM ET, Monday’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.

Adding, during the prior day’s regular trade, on lackluster intraday breadth and market liquidity metrics, the best case outcome occurred, evidenced by an expansion of range above the $4,437.75 micro composite point of control (MCPOC), to a new overnight high (ONH) at $4,469.75.

Coupled with that dynamic is the presence of numerous gaps and p-shaped emotional, multiple-distribution profile structures (i.e., old-money shorts covering); participants will likely look to revisit, repair, and strengthen – build out areas of high volume (HVNodes) via the cave-fill process – these areas of low volume (LVNodes). 

Graphic: Unsupportive delta (i.e., non-committed buying and 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).

Zooming out, we saw the Nasdaq 100 firming, relative to its peers, last week, a significant change in tone.

Given where the S&P 500’s price is in relation to the yellow anchored volume-weighted average price (VWAP), the average buyer, since the all-time high, holds a winning position; sideways-to-higher trade, above the upward sloping trendline, as well as the 50.00% and 61.8% retracements, likely puts in play a recovery of the all-time high.

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.

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.

Graphic: S&P 500 seasonality via @topdowncharts

According to a TS Lombard note featured by The Market Ear, the odds are that a tightening in monetary policy should not douse the bullish narrative:

“Tightening monetary policy cycles have historically been positive for stocks. The exceptions were in the 1970s, when inflation was counter-cyclical and the Fed tightened despite slowing growth. In ‘regular’ cycles the Fed raises rates only when the economy (and corporate earnings) warrants a tighter policy stance. What is interesting is that positive returns happen despite falling P/E multiples. Higher rates tend to lead to falling valuations, but earnings growth is typically strong enough to compensate for the derating. Since multiples are still much higher than normal, favouring Growth (faster EPS growth) over Value (slower EPS growth) is a good strategy at this stage.”

Graphic: TS Lombard’s analysis of tightening cycles, via The Market Ear.

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

To note, according to SpotGamma models, last week’s near-vertical price rise was responsively sold as dealers looked to hedge their increasing positive directional market exposure; going forward, hedging pressures may dampen volatility, potentially setting the market up for balance (i.e., sideways trade) as participants muster the conviction to initiate the next leg.

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 5:15 AM ET.

Definitions

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

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.

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.

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.

Inversion Of VIX Futures Term Structure: Longer-dated VIX expiries are less expensive; is a warning of elevated near-term risks for equity market stability.

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).

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

Forbearances declining faster, plans drop by 10%.

Morgan Stanley CEO is calling for Fed rate hiking.

Analysts warn that 60/40 portfolio will be battered.

Moody’s: Fundamental siding with Fed on inflation.

S&P Global: Data on job gains has come up short.

Global energy turning to fossil fuels amid demand.

How the asset management industry got disrupted.

What People Are Saying

About

After years of self-education, strategy development, and trial-and-error, Renato Leonard Capelj began trading full-time and founded Physik Invest to detail his methods, research, and performance in the markets. 

Additionally, Capelj is a finance and technology reporter. Some of his biggest works include interviews with leaders such as John Chambers, founder and CEO, JC2 Ventures, Kevin O’Leary, businessman and Shark Tank host, Catherine Wood, CEO and CIO, ARK Invest, among others.

Disclaimer

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

Categories
Commentary

Daily Brief For 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.

Categories
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.

Categories
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.

Categories
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.

Categories
Commentary

Daily Brief For October 8, 2021

Market Commentary

Equity index futures sideways overnight. Volatility ebbs.

  • Senate passed debt-ceiling raise.
  • Ahead: NFP, unemployment data.
  • Clarity regarding tapering by Fed.
  • Responsive selling into RTH high.

What Happened: U.S. stock index futures auctioned sideways overnight alongside news that the Senate passed a short-term debt ceiling increase. 

Ahead is data on nonfarm payrolls, the unemployment rate, and average hourly earnings (8:30 AM ET), as well as wholesale inventories (10:00 AM ET).

Graphic updated 6:40 AM ET. Sentiment Neutral if expected /ES open is inside of the prior day’s range. /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 6:40 AM ET, Friday’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.

During the prior day’s regular trade, on strong intraday breadth and divergent market liquidity metrics, the best case outcome occurred, evidenced by the expansion of range and value above the $4,410.25 low volume area (LVNode), between two key anchored-volume weighted average price (AVWAP) levels.

Into the price rise, however, we note that participants sold responsively (i.e., sold in response to prices printing above an area of recent acceptance or balance); as prices came into the resting liquidity (Graphic 2) – also the location of a key AVWAP in – at and around /ES $4,410.25 (SPY $441.00), buying and selling power as calculated by the difference in volume traded at the bid and offer diverged, markedly.

In other words, at the AVWAP – a metric highly regarded by chief investment officers, among other participants, for quality of trade – there were liquidity algorithms programmed to sell.

Why? Liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.
Graphic 1: SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index, encounters responsive selling at key volume-weighted average price levels. 
Graphic 2: Divergent delta (i.e., non-committed buying as measured by volume delta or buying and selling power as calculated by the difference in volume traded at the bid and offer) in SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index, via Bookmap. The readings are supportive of responsive trade or balance (i.e., rotational trade that suggests current prices offer favorable entry and exit).

This trade is significant because it suggests a willingness to slow price discovery and balance (i.e., trade sideways as participants look to establish an equilibrium in light of new information). 

We’re carrying forward the presence of a p-shaped emotional, multiple-distribution profile structure (i.e., old-money shorts covering) left behind prior initiative trade, as well as continued trade below the 20- and 50-day simple moving averages; these dynamics induce anxiety and stress for the technical-driven, weaker-handed buy-the-dip crowd.

Further, the aforementioned trade is happening as investors await key employment data that will provide context on what the Federal Reserve with respect to monetary policy.

According to Bloomberg, Friday’s payroll data – which is likely to indicate strong improvement – likely emboldens tapering initiatives and improves the prospects of a rise in the Fed funds rate.

“What we see in the equity space is a lot of sensitivity to higher real yields,” Joseph Little, chief global strategist at HSBC Asset Management, said. “We are seeing policy normalization everywhere. That creates a little bit of a challenge for equity market because it does change the drivers of equity performance.”

Graphic 3: A “gentle reminder of the fact tapering matters,” via The Market Ear.

Adding, earlier this week, we noted that indices were best positioned for a vicious rebound as near-term downside discovery metrics likely reached a limit. These dynamics remain.

Graphic: ​​On October 5, 2021, according to SqueezeMetrics, “Net Put Delta (NPD) and the customer Vanna-Gamma Ratio (VGR) [] settled in a *bullish* place. Risk to the upside.”

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 low volume area (LVNode) puts in play the $4,415.00 untested point of control (VPOC). Initiative trade beyond the VPOC could reach as high as the $4,437.75 micro-composite point of control (MCPOC) and $4,481.75 high volume area (HVNode), or higher.

In the worst case, the S&P 500 trades lower; activity below the $4,381.25 LVNode puts in play the $4,363.25 HVNode. Initiative trade beyond the HVNode could reach as low as the $4,332.25 LVNode and $4,278.00 HVNode, or lower.

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

Definitions

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).

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.

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.

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.

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

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.

News And Analysis

Short-term increase in U.S. debt ceiling passes Senate.

U.S. special operations rotating into Taiwan for training.

Moody’s: Kicking [debt limits] not too far down the road.

Energy Transition: Demand destruction stalking Europe.

APAC CBDCs – pathways plenty, destination uncertain.

Vaccinations and policy decisions are key to EM growth.

Richest Americans flee Treasuries with holdings at lows.

Crypto Mystery: Where’s the $69B behind Tether’s coin.

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.