Market Commentary For 2/5/2021

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

What Happened: Ahead of data on employment, alongside the passage of a budget plan to advance $1.9 trillion in COVID aid, U.S. stock index futures rose overnight.

What Does It Mean: Given a v-pattern recovery, U.S. stock indexes are positioned for further upside, as high as the 100% price projection, which happens to be near $4,000.00 in the S&P 500.

This positive price action is happening in the context of bearish undercurrents as evidenced by non-participatory speculative flows, delta (i.e., non-committed buying as measured by volume delta), and a divergence in DIX, a proxy for buying derived from short sales (i.e., liquidity provision on the market making side).

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Since price pays, participants ought to discount these undertones and position themselves for further upside discovery.

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.

Currently, the S&P 500 is rotating below the $3,884.75 projection, a typical target on a break from balance. Below current price lies Thursday’s $3,855.00 Virgin Point Of Control, or VPOC (i.e., the fairest price to do business in a prior session).

Noting: POCs (like HVNodes described below) are valuable as they denote areas where two-sided trade was most prevalent. Participants will respond to future tests of value as they offer favorable entry and exit.

Further below is a the $3,840.25 HVNode. As stated in prior sessions, HVNodes can be thought of as building blocks — they also denote areas of supply and demand. The primary strategy is to respond to probes into these supply (i.e., selling responsively) and demand (i.e., buying responsively) areas as they offer favorable entry and exit.

In the coming session, participants will want to pay attention to Thursday’s end-of-day spike and overnight all-time high (ONH).

Spike’s mark the beginning of a break from value and, in this case, would support the bullish thesis as long as participants, during regular trade, spend time above the spike base ($3,857.75). Adding, there is a low historical probability that overnight rally-highs end the upside discovery process.

For today, the following frameworks ought to be applied.

In the best case, the market will remain above, or find acceptance at (in the form of rotational trade) the $3,857.75 spike base. In the worst case, responsive sellers appear and restart the downside discovery process.

A break above the $3,886.25 ONH, participants may see discovery as high as $3,900.00, a balance-area extension (i.e., another balance-break target). A break below the prior RTH Low ($3,830.25), participants may see prices as low as the $3,799.00 balance-area low.

Levels Of Interest: $3,886.25 ONH, $3,857.75 spike base, $3,830.25 RTH Low.