Last Week Unpacked: During much of the week, participants lacked the conviction to break through to new highs. This was evidenced by mechanical trade (i.e., low-excess at the edges of balance).
However, after Thursday’s liquidation on news that Pfizer Inc (NYSE: PFE) would slash its 2020 vaccine production target flushed out weak-handed participants, responsive buyers surfaced and recovered the balance-area high.
During Friday’s regular trading, initiative buyers extended range — through the $3,682.00 balance-area high — up to the $3,700.00 high gamma strike. The after-hours session introduced a 4-tick excess high, providing a clear end to the upside discovery process.
What To Expect: Friday’s auction saw the separation and acceptance of value beyond a week-long balance-area.
This came after Thursday’s afternoon pullback found responsive buyers surface at a key technical level (i.e., the low-volume node near $3,655.00). The fact that there was a response at that technical reference confirms that participation in the market has been overwhelmingly short-term; in other words, institutions (e.g, funds) tend not to transact at exact technical levels.
Moreover, given that initiative buyers are in control, participants will come into Monday’s session in light of the following:
- Both sentiment and positioning are historically stretched while the market is stuck in a long-gamma environment; in such cases, dealers hedge their derivatives exposure by selling into strength and buying into weakness. As a result, volatility is suppressed and the market pins or slowly rises in a range-bound fashion, as we’re seeing.
- JPMorgan Chase & Co. (NYSE: JPM) strategist Marko Kolanovic suggests equities will rally short-term, with the S&P 500 auctioning as high as $4,000 in Q1 2021 on the basis of improved fundamentals.
- Though prior trade points to the non-presence of committed buying, Friday’s session saw the separation and acceptance of value above a week-long balance area, further confirming the higher-time frame breakout.
Therefore, knowing that higher S&P 500 prices have been accepted, the following frameworks for next week’s trade apply.
In the best case, if participants manage to further spend time and build value above the $3,682.00 balance boundary, then initiative buyers remain in control — the nearest upside level of interest is the projection near $3,710.00.
In the worst case, an initiative drive below $3,682.00 would portend a response at the $3,667.75 high-volume node. Auctioning even lower would denote a clear change in conviction. As a result participants would look to whether the $3,640.00 balance boundary holds. Breaking that reference puts the rally on hold.
Conclusion: Though sentiment and positioning imply limited potential for further upside, the market remains in a strong technical uptrend bolstered by improved fundamental factors.
Overall, the S&P 500 has confirmed a multi-month balance-break.
Levels Of Interest: $3,710.00 projection, the micro-composite HVNode at $3,690.75 and $3,667.75, as well as the $3,682.00 and $3,640.00 balance boundary.