Daily Brief | June 3, 2021

Daily commentary for U.S. broad market indices.

Quick Note: As I will be on a short trip, the daily newsletter will be off tomorrow, June 4, and Monday, June 7. 

If you will be in the Miami, Florida area this weekend and would like to network, please let me know.


Market Commentary

Index futures are in balance and attempting to discover lower prices.

  • Russia cutting DXY holding, taper talk.

  • Ahead: PMIs, ISM, Claims, Fed speak.

  • Stock indexes trade sideways to lower.

What Happened: U.S. stock index futures auctioned lower overnight ahead of weekly claims and payrolls data.

The alleged culprit? Geopolitical tensions and concerns over inflation.

Russia said it would eliminate the dollar (DXY) from its National Wellbeing Fund, President Biden announced plans to amend a U.S. ban on foreign investments, and Fed President Patrick Harker suggested the central bank should discuss time frames for taper.

What To Expect: 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. 

Adding, during the prior day’s regular trade, the best case outcome occurred, evidenced by sideways trade up to the low volume area (LVNode) at $4,215.75. This LVNode is significant because it marks an area on the profile where participants were likely acting out of emotion, triggering stops, and at-market orders. 

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: SPDR S&P 500 ETF Trust (NYSE: SPY) market liquidity, via Bookmap. Note the divergent volume delta, a measure of buying and selling power as calculated by the difference in volume traded at the bid and offer. Such conditions favor more balance (two-timeframe, rotational, or bracket trade).

Further, the broad equity market has been consolidating now for more than a month. This comes as participants look to price in supply chain uncertainties and rising inflation, fiscal and monetary tightening, COVID-19 concerns, political risks, and the like.

There is a possibility that data on U.S. payrolls, this week, may shed a light on the Federal Reserve’s stimulus schedule. Most likely, though, indices chop, remain in range. 

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 $4,177.25 high volume area HVNode puts in play the $4,199.00 HVNode. Initiative trade beyond the $4,199.00 HVNode could reach as high as $4,209.00 point of control (POC). 

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; activity below $4,177.25 HVNode puts in play the $4,153.25 HVNode. Thereafter, if lower, attention is drawn to the HVNodes at $4,122.25 and $4,069.25.

Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for June 2. Activity in the options market was primarily concentrated in short-dated tenors, in put strikes below current prices.
Graphic: SHIFT search suggests participants were most interested in put strikes at and below current prices in the cash-settled S&P 500 Index (INDEX: SPX) and Nasdaq 100 Index (INDEX: NDX), yesterday. Noting, again, the interest in long-dated out-of-the-money Nasdaq calls.

News And Analysis

Economy | Demand back, supply lagging. Both to grow in coming months. (PIIE)

Politics | Russia cuts dollar holdings from a wealth fund amid sanctions. (BBG)

Recovery | COVID-19 cases hit lowest point in U.S. since pandemic start. (Axios)

Economy | Harker says Fed needs to start discussing tapering timeline. (BBG)

Economy | U.K.’s Sunak says U.S. plan to break tax deadlock could work. (REU)

Politics | Biden to amend Trump’s China blacklist, target key industries. (BBG)

Politics | Iran investigates a fire that sank one of its largest navy ships. (WSJ)


What People Are Saying


Innovation And Emerging Trends

Politics | U.S. plows cash into R&D as China triggers a ‘Sputnik Moment.’ (BBG)

FinTech | Crypto firms are failing to meet AML regulations, says watchdog. (BBG)

FinTech | DeFi helping fuel the cryptocurrency market boom and volatility. (WSJ)

Climate | Eight major companies unite to push climate change solutions. (Axios)

Technology | Media industry braces for post-COVID-19 pandemic reality. (Axios)


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.