Market Commentary For 1/22/2021

Daily commentary for U.S. broad market indices.

Notice: To view this week’s big picture outlook, click here.

What Happened: Alongside news of disappointing economic data and new pandemic restrictions, U.S. index futures auctioned back into prior balance.

What Does It Mean: Initiative buyers extended the S&P 500’s rally, breaking the index above its $3,824.25 balance-area high (BAH). After establishing acceptance (i.e., high-volume area, or HVNode) near the $3,850.00 price extension, an upside target, U.S. index futures auctioned back into range, repairing poor structures left in the wake of prior discovery.

In the simplest way, high-volume areas can be thought of as building blocks. A structurally sound market will build on past areas of high-volume. Should the market trend for long periods of time, it will lack sound structure. If participants were to auction and find acceptance into areas of prior low-volume, then future discovery ought to be volatile and quick as participants look to areas of value for favorable entry or exit.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM ET) will likely open outside of the prior day’s balance and range. The S&P 500, in particular, may open below the $3,824.25 BAH. Doing so, while not soliciting a response from responsive buyers, would negate the earlier rally, and put in play the $3,763.75 balance-area low (BAL).

Few dynamics to note: (1) poor structure in prior sessions, as evidenced by the low-volume areas (LVNodes) in the graphic above, is being repaired, (2) a new overnight all-time high (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), (3) a break that finds acceptance outside of a larger balance-area portends continuation up to the 100% price projection, or double the width of the balance-area, (4) trading back into to the consolidation, thereby invalidating the break-out, would portend a move to the other end of balance, or the $3,763.75 BAL, (5) big picture uptrend remains intact.

Moreover, in light of the above dynamics, the normal course of action is responsive trade. However, any break that finds increased involvement (i.e., supportive flows and delta) below $3,824.25 BAH, would favor continuation as low as the $3,763.75 BAL.

In the best case, if responsive buying was to defend the BAH, then participants ought to target the $3,850.00 high-volume concentration.

Levels Of Interest: $3,824.25 BAH, $3,850.00 HVNode, $3,763.75 BAL.

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