Notice: To view this week’s big picture outlook, click here.
What Does It Mean: After a v-pattern recovery and sideways trade in the weeks prior, stock index futures auctioned out of prior-balance and -range, via Friday’s end-of-day spike.
More On Spikes: Spike’s mark the beginning of a break from value. Spikes higher (lower) are validated by trade at or above (below) the spike base (i.e., the origin of the spike).
Adding, the spike makes it easy to spot the shift from balance (i.e., the transition from two- to one-time frame trade). For the entirety of Friday’s session, prices rotated in the face of increased buying interest, as observed by volume delta. At the outset, buying pressure looked as thought it was absorbed by sellers. Eventually, the rise in delta was resolved when participants broke through a ledge of responsive selling, and established record highs.
More On Volume Delta: Buying and selling power as calculated by the difference in volume traded at the bid and offer.
What To Expect: Tuesday’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.
This comes alongside a resumption in trend and an overnight rally-high at $3,959.25.
More On Overnight Rally Highs: Typically, there is a low historical probability associated with overnight rally-highs ending the upside discovery process.
Given the spike, balance-break and subsequent resumption in trend, as well as the overnight high (ONH), participants are aware that favorable opportunities primarily rest on the long-side.
Thus, given the aforementioned dynamics, the following frameworks ought to be applied.
In the best case, the S&P 500 opens and remains above the $3,919.75 spike base, confirming last week’s higher prices. In the worst case, the S&P 500 auctions below the $3,919.75 spike base.
Trade below the spike base would be the most negative outcome and could trigger a new wave of downside discovery, repairing some of the poor structures left in the wake of the aforementioned advance.
Levels Of Interest: $3,919.75 spike base.