Notice: To view this week’s big picture outlook, click here.
What Happened: As earnings season kicks into gear, alongside a resurgence in COVID-19 across Europe, U.S. index futures auctioned into the developing balance-area low.
What Does It Mean: The S&P 500, after consolidating near the $3,800 high-open interest strike, is testing the extremes of balance, the bracket of overlapping value areas in the days prior, as participants position themselves for directional resolve.
What To Expect: Friday’s regular session (9:30 AM – 4:00 PM ET) will likely open outside of prior-balance and -range, suggesting the potential for immediate directional opportunity.
Given that the open will still be inside of a larger balance area ($3,824.25-$3,763.75), participants must monitor for responsive buying below value.
Re-entry into value (i.e., a cross through the $3,787.50 LVNode) portends continuation, at least until the $3,793.25 high-volume area, the market’s most recent perception of value.
Excess (e.g., buying tail) may denote an end to downside discovery. The absence of excess, or multiple periods of trade below value, may signal a shift in conviction. In such case, participants would monitor for supportive flows and delta (i.e., committed selling) on a break of the $3,763.75 balance low. If price is accepted (i.e., more than one-half hour of trade) below the balance area, then participants ought to trade in the direction of the new activity. Trading back into the consolidation, thereby invalidating the break-out, would portend a move to the other end of balance.
Noting: (1) The multi-month upside breakout targeting prices as high as $4,000 remains intact and (2) end-of-day positioning was accompanied by aggressive buying into the lows. If the market was to sell hard, aggressive buying would have not been present.
Levels Of Interest: $3,824.25 regular trade high, the $3,763.75 balance low, as well as the $3,787.50 LVNode.