Notice: To view this week’s big picture outlook, click here.
What Happened: Alongside hopes for more stimulus spending to help the U.S. recover from the pandemic downturn, U.S. index futures established a new all-time high in the overnight session, before backing off into prior-range and -value.
What Does It Mean: After the resolve of a long-liquidation earlier in the week, the market is in price discovery mode, trending to establish balance, or two-sided trade.
What To Expect: Friday’s regular session (9:30 AM – 4:00 PM ET) will likely open close to prior-balance and -range, implying higher volatility at the open.
Few dynamics to note: (1) poor structure in prior sessions, as evidenced by the low-volume areas (LVNodes) in the graphic above, (2) divergence from developing value, (3) a new overnight all-time high (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), as well as (4) unsupportive speculative flows and delta in some instances.
Given the above dynamics, the go/no-go level for upside in the S&P 500 is the $3,817.75 overnight high. The go/no-go level for downside is the low-volume node at $3,787.50, an area that denotes upside conviction. On any virgin test, the S&P 500 ought to find support at this LVNode. However, should the index break below that level, then conviction has changed.
In a failure to break either go/no-go level, the normal course of action would be responsive trade.
Noting: Since the prior day’s range is close by, any acceptance (i.e., at least one half-hour of trade) of price within prior value reduces the odds of a dynamic move.
Levels Of Interest: $3,817.75 overnight high and $3,787.50 LVNode.