Notice: To view this week’s big picture outlook, click here.
What Happened: U.S. stock index futures auctioned lower as investors turned cautious ahead of economic releases.
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).
The spike and shift from balance (i.e., the transition from two- to one-time frame trade) was accepted, despite Tuesday’s liquidation break.
More On Liquidation Breaks: The profile shape in the S&P 500 suggests participants were “too” long and had poor location.
Adding, for the entirety of Tuesday’s session, prices rotated lower in the face of increased buying interest, as observed by volume delta and option activity.
Given that the market is technically positioned for higher, it will be interesting to see whether on not Tuesday’s interest (as measured by volume delta) leads to upside resolve.
More On Volume Delta: Buying and selling power as calculated by the difference in volume traded at the bid and offer.
IWM Market Liquidity 
QQQ Market Liquidity 
SPY Market Liquidity 
SPY, QQQ, IWM Option Activity
What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM ET) will likely open inside of prior-balance and -range, suggesting the limited potential for immediate directional opportunity.
This comes alongside a resumption in trend, acceptance of higher prices (above a prominent high-volume area), 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. More On Volume Areas: 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 (identified as a low-volume area which denotes directional conviction and ought to offer support on any test). 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 high-volume for favorable entry or exit.
Thus, given the above 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, further 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.
Why? Beneath the spike base is a high-volume concentration which offers favorable entry and exit for initiative buyers and responsive sellers. Should the market auction beneath the spike base (and aforementioned high-volume area), then participants may see a new wave of downside discovery.
Levels Of Interest: $3,919.75 spike base.