Market Commentary For 1/26/2021

Daily commentary for U.S. broad market indices.

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

What Happened: After a brief liquidation during Monday’s session, U.S. index futures traded flat overnight, with the S&P 500 rotating within an 8-session balance-area.

What Does It Mean: During Monday’s regular trade in the S&P 500, market participants were unable to break through to new highs; profile structures denoted a market that wasn’t paying longs that were late to the party.

Further, the Monday morning liquidation cleared the inventory of those participants that bought too much, repairing some poor structures left in the wake of last week’s upside discovery.

Given that the $3,824.25 balance-area high (BAH) was rejected, upside conviction remains intact (graphics 1 and 2 confirm this).

As a result, attention is drawn to the $3,852.50 ledge which has attracted responsive sellers numerous times over the past 8-sessions.

Graphic 1: Order flow in the SPDR S&P 500 ETF Trust (NYSE: SPY), the largest ETF that tracks the S&P 500
Graphic 2: Speculative derivatives activity for Monday, January 25

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open inside of prior-balance and -range, suggesting higher volatility and limited directional opportunity.

As stated earlier, participants have to contend with the $3,852.50 ledge. In today’s session, (1) a lack of upside continuation increases confidence among responsive sellers to transact below the ledge or (2) the level cracks, and initiative buying surfaces. In the latter case, the best outcome would include a test of the $3,859.75 overnight all-time high (there is a low probability that overnight all-time highs end the upside discovery process) and $3,884.75 price projection, or double the width of the balance-area, the typical target on a balance-area breakout.

The go/no-go for upside is the $3,852.50 ledge. The go/no-go for downside is $3.821.50 overnight low.

Levels Of Interest: $3,852.50 ledge, $3.821.50 overnight low.

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