Notice: To view this week’s big picture outlook, click here.
What Happened: Alongside U.S. Senate election uncertainty and new COVID lockdowns, U.S. index futures balanced overnight after Tuesday’s recovery.
What Does It Mean: A divergence between price and value resolved itself in Monday’s regular trade. Thereafter, during Tuesday’s recovery, participants auctioned the S&P 500 off its $3,705.00 ledge, into a low-volume area, before responsive selling appeared at the $3,727.25 high-volume node (HVNode).
What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM ET) will open inside of prior-balance and -range.
Given muted conviction (e.g., non-presence of committed buying or selling as measured by volume delta) and technical trade (i.e., responses at predictable levels), as well as an outstanding overnight all-time high (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), the following framework applies.
Similar to Tuesday, the S&P 500 will likely open within prior-balance and -range, so volatility will be high. The go/no-go level for upside is the $3,734.50 recovery high, above the $3,727.25 high-volume node. The go/no-go level for downside is Monday’s regular trade low at $3,652.50. A break below Monday’s low would portend downside follow-through as low as the high-volume nodes near $3,610.00 and $3,555.00. In a failure to break either go/no-go level, the normal course of action would be responsive trade.
Noting: High-volume areas represent value and have the tendency to attract price. Should the market auction into the high-volume area, then prices should slow as balanced, two-sided trade takes over (i.e., the region offers attractive entry and exit). Auctioning through the high-volume area would be the most positive outcome.
Levels Of Interest: $3,734.50 recovery high and $3,652.50 Monday regular trade low.