Notice: To view this week’s big picture outlook, click here.
What Happened: After a range-bound balancing day, U.S. index futures tested lower overnight alongside news that COVID-19 case counts were rising, before turning at a visual level, and trading back into range.
What Does It Mean: Participants further accepted the upside break of $3,691.00 in the S&P 500, a boundary that attracted responsive selling in the week prior.
What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM ET) will open within prior-balance and -range.
Given three-sessions worth of unchanged value, and the failure to fill the gap beneath a weak low (i.e., a visual level that attracts the business of short-term, technically-driven market participants) at $3,714.50, participants will come into today’s session knowing the following: (1) markets are closed on Friday, (2) the failure to resolve directionally points to the absence of larger, other time frame participants (i.e., institutions that don’t transact at technical levels), (3) the overnight rally high at $3,747.75 remains intact (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), and (4) the period leading up to New Year, after Christmas, is historically bullish.
Noting: Excess forms after an auction has traveled too far in a particular direction and portends a sustained reversal. Absence of excess, in the case of a low, suggests minimal conviction; participants will cover (i.e., back off the low) and weaken the market, before following through.
Putting it all together, the S&P 500 is trading within a larger bracket; trade between $3,747.75 and $3,714.50 ought to be responsive. Auctioning beyond either reference would end the bracketing process and portend continuation.
Levels Of Interest: Overnight high at $3,747.75, Tuesday’s pullback low at $3,714.50, the upside extension at $3,756.75 and the $3,691.00 break-point.
Bonus: Below, you will find two visuals. The first suggests the big picture S&P 500 breakout remains intact. The second suggests conviction is thinning, given light intra-day participation (i.e., the activity that occurred before the end-of-day positioning).