Daily Brief | April 30, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures in balance.

  • Fundamentals great, risks nearing.

  • Earnings, FOMC pass. What now?

  • May see chop or responsive trade.

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

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

Adding, during the prior day’s regular trade, the worst-case outcome occurred, evidenced by initiative trade below the $4,186.75 ledge (also the balance-area high, or BAH). This is significant because it suggests participants did not have the conviction to explore higher prices beyond balance (a dynamic that’s caused by participants searching for more information to base their next move). 

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

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

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

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

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

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

For today, participants can trade from the following frameworks. 

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

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

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

Graphic: S&P 500 Index (top left), Nasdaq 100 (top right), Russell 2000 (bottom left), and Dow Jones Industrial Average (bottom right). Updated 9:30 PM EST.
Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for April 29. Activity in the options market was primarily concentrated in short-dated tenors, in strikes as low as $400.00, which corresponds with $4,200.00 in the cash-settled S&P 500 Index (INDEX: SPX).

News And Analysis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


What People Are Saying


Innovation And Emerging Trends

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

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


About

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

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

Disclaimer

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