Market Commentary For 2/2/2021

Daily commentary for U.S. broad market indices.

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

What Happened: Ahead of big earnings from Exxon Mobil Corporation (NYSE: XOM), Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL), alongside stimulus optimism, initiative buyers extended Monday’s broad market rally overnight.

What Does It Mean: Despite being in a good position for downside discovery due to deleveraging, inversion of the VIX term structure, a shift into short-gamma, and a rise in purchases of downside protection with time, market participants responded to probes into prior value.

As a result, stock indexes are at an interesting juncture. The S&P 500, in particular, took back all of Friday’s selling, and is now resting at the $3,794.75 high-volume node (HVNode).

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open on a gap, outside of prior-balance and -range, suggesting the potential for directional opportunity and high volatility.

Currently, the S&P 500 is rotating around the $3,794.75 HVNode.

As stated in the past, high-volume areas can be thought of as building blocks. A structurally sound market will build on past areas of high-volume. If participants were to auction and find acceptance into areas of prior low-volume (as they did Monday), then future discovery ought to be volatile and quick (as it was) as participants look to areas of high-volume for favorable entry or exit (where we are at now).

Given that the market will likely open on another gap, participants should look to whether the advance holds (i.e., a market will transition from up and down, to sideways trade). Holding the gap would suggest initiative buyers are in control, near-term. Auctioning below Monday’s regular-trade high ($3,777.00) would be the most negative outcome.

In the best case, the market will initiate and find acceptance (in the form of rotational trade) above the $3,794.75 HVNode.

In the worst case, responsive sellers appear and continue the downside discovery process. Any break that finds increased involvement below the $3,727.75 HVNode, would favor continuation as low as the $3,611.50 and $3,556.00 HVNodes.

The second to last HVNode corresponds with the $361 SPY put concentration, which may serve as a near-term target, or bottom, for this sell-off, given last week’s activity at that strike (below graphic).

Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust, for the week ending January 30, 2021.

The go/no-go for upside is the $3,804.00 overnight-trade high. The go/no-go for downside is $3,717.25 regular-trade low. Anything in-between portends responsive, non-directional trade.

Levels Of Interest: $3,804.00 ONH, $3,717.25 regular-trade low.

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