Notice: To view this week’s big picture outlook, click here.
What Happened: Alongside calls for added stimulus and political uncertainty, market participants digested higher prices, as evidenced by U.S. index futures balancing within prior range.
What Does It Mean: After a v-pattern recovery, the S&P 500 is consolidating near the $3,800 high-open interest strike. Assuming continuation, this dynamic will cease as soon as buyers become aggressive and derivatives exposure is rolled up in price and out in time.
Noting: Consolidation after trend allows prices to converge with value, forming high-volume areas. The prices in this area are valuable and offer favorable entry and exit.
What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM ET) will likely open in prior-balance and -range, suggesting no immediate directional opportunity.
Given (1) the developing balance area, (2) poor structure beneath the market, (3) divergence between broad market indices and sectors, and (4) a v-pattern recovery, the following applies in today’s trade.
In a failure to break from balance, the normal course of action would be responsive trade. However, a break that finds increased involvement above $3,824.25 or below $3,763.75 in the S&P 500 would favor continuation.
Noting: In most cases, a break-out from balance is usually the start of a short-term auction. Therefore, placing trades in the direction of the break is the normal course of action. Trading back into the consolidation, thereby invalidating the break-out, would portend a move to the other end of balance.
Levels Of Interest: $3,824.25 regular trade high and $3,763.75 balance low.
Bonus: The S&P 500 balance-break targeting prices as high as $4,000 remains intact.