Notice: To view this week’s big picture outlook, click here.
What Happened: As President Donald Trump moved to sign into law a $2.3 trillion pandemic aid bill, U.S. index futures auctioned to record highs.
What Does It Mean: Friday’s session found responsive selling surface near the $3,691.00 S&P 500 profile level. Since then, participants initiated past the level with conviction, and took out the $3,724.25 prior all-time high, before auctioning back into range and finding acceptance near $3,720.00.
What To Expect: The low-volume area (marked as the LVNode at $3,711.50) is representative of upside conviction after a break of the $3,691.00 boundary. This same low-volume area should offer support on a future test. Acceptance within the low-volume area, beneath $3,711.50, may portend a test of the $3,691.00 break point. Auctioning beneath the breakpoint would be the most negative outcome, negating the transition from balance to trend.
Noting: In most cases, a break-out (i.e., gap or auction failure) from balance is usually the start of a short-term auction. Therefore, placing trades in the direction of the gap is the normal course of action. Further, gaps tend to fill within the first half-hour of regular trade (9:30 AM – 4:00 PM ET). The longer a gap holds, however, the higher odds of continuation. Should responsive sellers auction through the entire gap, then conditions have changed.
Adding, the days leading up to the New Year, after Christmas, are historically bullish, dubbed the Santa Claus Rally. Here’s an excerpt from a Yahoo Finance article on the topic:
“Well, there isn’t a single seven-day combo out of the full year that is more likely to be higher than the 77.9% of the time higher we’ve seen previously during the Santa Claus Rally,” LPL Financial’s analysts observed after analyzing data going back to 1950. “Additionally, these seven days are up an average of 1.33%, which is the second-best seven-day combo of the year.“
Levels Of Interest: $3,711.50 LVNode and $3,726.50 all-time overnight high. Today’s go/no-go level in the S&P 500 is $3,691.00; remaining above is bullish.