Market Commentary For 12/29/2020

Notice: To view this week’s big picture outlook, click here.

What Happened: Alongside stretched sentiment and bets that fiscal aid will improve the vaccine-led recovery, U.S. index futures, again, auctioned to record highs.

What Does It Mean: During Monday’s session, participants accepted the break of $3,691.00 in the S&P 500, a boundary that attracted responsive selling in the week prior. Since then, participants continued the upside discovery process, establishing a new overnight all-time high at $3,747.75.

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open on another gap. Given that this is the second gap (the gap between Friday and Monday’s session was the start of the short-term auction), in the context of a new trend , participants know that upside conviction and strength has been reaffirmed.

Noting: Monday’s break-out from balance confirmed the start of a new short-term auction. The acceleration of that trend overnight, via the second gap, further emboldens buyers.

Now, given what appears to be an absence of other-time frame participants (e.g., institutions, larger-time frame players), participants will come into today’s session knowing (1) the structure at Monday’s regular session high was poor, (2) overnight activity established a new all-time high (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), and (3) the period leading up to New Year, after Christmas, is historically bullish.

Putting it all together, the path or least resistance is up. Important references for today’s trade include the low-volume area between $3,737.00 and $3,732.25 which ought to be supportive, the untested point of control (i.e., VPOC — the most valuable price from the day prior) at $3,727.25, and the overnight all-time rally high at $3,747.75.

Auctioning beneath yesterday’s morning pullback low at $3,716.00 would jeopardize the breakout. At that point, participants would look for a response at the $3,691.00 break-point. Auctioning below $3,691.00 is a no-go and would portend further rotation.

Levels Of Interest: $3,737.00 and $3,732.25 LVNodes, VPOC at $3,727.25, overnight high at $3,747.75, pullback low at $3,716.00, and the $3,691.00 break-point.