Categories
Commentary

Market Commentary For The Week Ahead: ‘All In At The Top’

Weekly commentary for U.S. broad market indices.

Key Takeaways:

  • Analysts extended 2021 S&P 500 targets.
  • Fear and greed are tugging at each other. 
  • Jefferies ups 2021 GDP forecast to 5.25%.
  • Net equity buying the largest in months.
  • Inflation is rising where you don’t want it.
  • Positioning suggests elevation of volatility.
  • The big picture breakouts remain intact.

What Happened: Coming into the extended holiday weekend, on tapering volumes, U.S. index futures balanced within prior range. 

This activity occurred in the context of a larger balance-area forming just beyond the $3,600.00 multi-month break-out point. Given the lack of range expansion, in addition to the aforementioned responsive, back-and-forth trade, participants are signaling a lack of conviction.

Though there is a lot of noise in the markets — an uneven recovery, stimulus, elections, trade, and the like — one key point remains: the multi-month upside breakout targeting S&P 500 prices as high as $4,000.00 remains intact. Add to this the recovery of Monday’s liquidation fueled by weak-handed, short-term buyers, and the fact that the all-time $3,724.25 rally-high was established in an overnight session, it is highly likely that the upside discovery process has yet to end.

Note: Historically, there is a low probability that overnight all-time highs end the upside discovery process. 

Pictured: Profile overlays on a 30-minute candlestick chart of the Micro E-mini S&P 500 Futures

What To Expect: Friday’s session found responsive selling surface near the $3,691.00 profile level. Given that participants had difficulty in sustaining higher prices, alongside shortened holiday trade, the following frameworks apply for next week’s trade.

In the best case, the S&P 500 remains above its $3,667.75 HVNode, and continues to balance. As stated earlier, given the tapering volume and holiday, the odds of directional resolve are quite low. 

Two go, no-go levels exist; trade that finds increased involvement above $3,691.00 and below $3,667.75 would suggest a change in conviction. Anything in-between favors responsive trade.

Conclusion: Bank of America Corp’s (NYSE: BAC) Michael Hartnett summarized it best: “[T]he year of the virus, the lockdown, a crash, a recession, an epic policy panic, the greatest stock market rally of all-time, a V-shape economic recovery, and ending with a vaccine for COVID-19.”

Though risks remain, markets are pricing in the odds of a continued rebound. Unless some exogenous event were to transpire, technically speaking, all broad-market indices are in an uptrend. A move below $3,600.00 in the S&P 500 would denote a change in tone, increasing the likelihood of a failed breakout that would target prices as low as $3,200.00.

Pictured: Retest of the upside breakpoint on a daily candlestick chart of the cash S&P 500 Index

Levels Of Interest: The $3,691.00 boundary and $3,667.75 HVNode.

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

Photo by Raka Miftah from Pexels.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s