Market Commentary For 12/16/2020

Daily commentary for U.S. broad market indices.

What Happened: Ahead of today’s Federal Reserve policy decision, U.S. index futures auctioned higher overnight.

What Does It Mean: During Tuesday’s regular trade, the S&P 500 initiated up to the $3,667.75 high-volume node, a valuable price, before sellers responded, extended lower, and then buyers retook control, one time framing higher into the close.

Given that Monday’s selling activity was negated yesterday, the S&P 500 sits in a tactically bullish position, confirming the higher-time frame upside breakout which targets prices as high as $4,000.

Pictured: Daily candlestick chart of the cash S&P 500 Index

Adding, the overnight auction brought the index back above its most valuable price over the past two weeks of trade, the most positive outcome.

What To Expect: In light of the overnight gap higher, the following frameworks apply for today’s trade.

In the best case, buyers maintain conviction through the Federal Reserve event, and hold the index above the $3,667.75 high-volume node. Thereafter, upside references include the high-volume node at $3,707.75, and then the prior all-time rally high.

In the worst case, if the S&P 500 is brought back below $3,667.75, participants would look to whether the auction — again — resists last Friday’s range. As stated yesterday, accepting Friday’s range puts in play the minimal excess lows near $3,625.00. Any activity below $3,625.00 would put in question the higher-time frame breakout.

Levels Of Interest:  $3,667.75 high-volume node is the go/no-go level today.

Key Takeaways: In the face of volatile positioning, and the S&P 500’s balancing activity, the macro- and technical-landscape remains bullish.

In support of a rally is the (1) return of systematic strategies, (2) seasonality, and (3) a weaker dollar, among other factors.

Still, the Fed decision and rebalancing are around the corner, while sentiment and other positioning metrics are at extremes. It’s a time to get picky with trades.

Bonus: Here is a look at a few of the opportunities unfolding.

Chipotle Mexican Grill Inc (NYSE: CMG) – Potential for upside breakout and continuation. Upgraded on Wednesday.

Shopify Inc (NYSE: SHOP) – Balance just shy of channel boundary. Potential for upside breakout and continuation.

Apple Inc (NASDAQ: AAPL) – Acceptance after higher-time frame balance-breakout.

Advanced Micro Devices Inc (NASDAQ: AMD) – Acceptance after higher-time frame balance-breakout.

Spotify Technology SA (NYSE: SPOT) – Acceptance after higher-time frame balance-breakout. Potential remains for a push to the balance-area projection.

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