Daily Brief | June 10, 2021

Daily commentary for U.S. broad market indices.

Market Commentary

Index futures attempting to exit balance, resume discovery.

  • U.S. and China resume their talks.

  • Ahead: U.S. inflation data for May.

  • Indexes auction sideways to lower.

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

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

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

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

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

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

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

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

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

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

Gamma: Gamma is the sensitivity of an option to changes in the underlying price. Dealers that take the other side of options trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.

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

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

POCs: POCs (like HVNodes described above) are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

In the worst case, the S&P 500 trades lower; remaining below the $4,224.75 spike base denotes acceptance of Wednesday’s knee-jerk move from value. In such a case, lower prices are likely. Participants ought to focus their attention on whether the low at $4,206.00 holds. If not, the next level of interest is the $4,198.75 HVNode. Thereafter, attention moves to the $4,177.25 HVNode.

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

News And Analysis

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

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

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

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

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

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

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


What People Are Saying


Innovation And Emerging Trends

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

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

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

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

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

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


About

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

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

Disclaimer

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