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Commentary

Market Commentary For 3/19/2021

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

What Happened: U.S. stock index futures auctioned higher as bond yields eased from their 14-month highs.

What Does It Mean: During Wednesday’s trade, alongside monetary policy announcements, the S&P 500 established a new all-time high.

Thereafter, participants took back the news-driven vertical price range, pushing indexes well into prior range.

All in all, Thursday’s dip comes after a significant recovery that managed to establish a new overnight all-time high in the S&P 500.

More On Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

Further, coming into Friday’s derivative expiry, market liquidity suggested strong selling Thursday with the resolve of resting orders (opportunistic buying or short covering into weakness) below the market. Speculative options activity was concentrated in near-dated tenors on the put-side, in the face of increased buying pressure (as witnessed through measures like DIX).

More On DIX: For every buyer is a seller (usually a market maker). Using DIX — which is derived from short sales (i.e., liquidity provision on the market making side) — we can measure buying pressure.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM ET) will likely open inside of prior-range, suggesting a limited potential for immediate directional opportunity.

During Thursday’s trade, lower prices failed to facilitate increased participation, evidenced by the S&P 500’s divergence from intraday value. The divergence continued until a test of the $3,904.25 low-volume area (LVNode) solicited a response.

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.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 finds acceptance (i.e., resolves higher or sideways), above the $3,937.25 Virgin Point of Control (VPOC). In the worst case, the S&P 500 finds acceptance (i.e., resolves lower or sideways) below the $3,937.25 VPOC.

More On POCs: POCs (like HVNodes described above) 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.

In case of higher prices, participants may look to auction as high as the $3,951.75 and $3,965.25 HVNodes. In case of lower prices, participants can look to the $3,904.25 and $3,879.25 low-volume LVNodes for a response.

Levels Of Interest: $3,937.25 VPOC.

Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Categories
Commentary

Market Commentary For 3/18/2021

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

What Happened: U.S. stock index futures auctioned higher after the Federal Reserve kept its policy rate unchanged and ramped up expectations for growth. Afterwards, the news-driven vertical price range was taken back, evidenced by an overnight liquidation that brought price back into range.

What Does It Mean: In light of reaffirmed monetary policy expectations, participants have more information to base their next move.

Heading into Wednesday’s policy meeting, stock indexes were balancing, trading back and forth in a small range. Now that participants have more information, attention is shifted to the Nasdaq-100’s relative weakness, the large March monthly options expiration (OPEX), after which, the interest at the $4,000.00 S&P 500 option strike will roll-off, as well as improving market breadth.

Bonus: Most funds are committed to holding long positions. In the interest of lower volatility returns, these funds will collar off their positions, selling calls to finance the purchase of downside put protection.

As a result of this activity, option dealers are long upside and short downside protection.

This exposure must be hedged; dealers will sell into strength as their call (put) positions gain (lose) value and buy into weakness as their call (put) positions lose (gain) value.

Now, unlike theory suggests, dealers will hedge call losses (gains) quicker (slower). This leads to “long-gamma,” a dynamic that crushes volatility and promotes momentum, observed by lengthy sprints, followed by rapid de-risking events as the market transitions into “short-gamma.”

If the interest near $4,000.00 S&P 500 is not rolled up in price and out in time, then option hedging requirements will change.

However, it is important to note that, in recent days, some exposure has been rolled up in price and out in time. This suggests an inclination by participants to maintain long exposure through OPEX.

What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM ET) will likely open inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

During Wednesday’s trade, participants found acceptance above the $3,931.00 Virgin Point of Control (VPOC), prior to establishing a new all-time rally-high. Overnight, participants failed to gather enough conviction to continue upside price exploration. Thereafter, prices came back into prior-range.

More On POCs: POCs (like HVNodes described above) 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.

Based on that information, for today, participants can trade from the following frameworks.

In the best case, the S&P 500 finds acceptance (i.e., resolves higher or sideways), above the $3,932.25 high-volume area (HVNode). In the worst case, the S&P 500 finds acceptance (i.e., resolves lower or sideways) below the $3,932.25 high-volume area (HVNode).

In case of higher prices, participants may look to auction as high as the $3,951.75 and $3,965.25 HVNodes. In case of lower prices, participants can look to the $3,904.25 low-volume area (LVNode) for a response.

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.

Levels Of Interest: $3,932.25 HVNode.

Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Categories
Commentary

Market Commentary For 3/17/2021

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

What Happened: U.S. stock index futures liquidated as investors weighed the implications of rising yields ahead of outcomes on a U.S. Federal Reserve policy meeting.

What Does It Mean: Heading into Wednesday’s session, which ought to be volatile as participants position themselves in response to new economic projections, responsive trade is the course of action.

This notion is supported by market liquidity metrics, which suggest buying pressure is leveling out, and options activity, which points to a build in interest at the $4,000 S&P 500 level, ahead of Friday’s monthly option expiration (OPEX).

More On Option Expiration (OPEX): Option expiries mark an end to pinning (i.e, the theory that market makers and institutions short options move stocks to the point where the greatest dollar value of contracts will expire worthless) and the reduction dealer gamma exposure.

What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM ET) will likely open just outside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

During Tuesday’s trade, participants established minimal excess at a new all-time rally-high before auctioning the S&P 500 below its $3,947.75 spike base, negating the bullishness of Monday’s end-of-day trade.

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).

Excess: A proper end to price discovery; the market travels too far while advertising prices. Responsive, other-timeframe (OTF) participants aggressively enter the market, leaving tails or gaps which denote unfair prices.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 finds acceptance (i.e., resolves higher or sideways), above the $3,931.00 Virgin Point of Control (VPOC). In the worst case, the S&P 500 finds acceptance (i.e., resolves lower or sideways) below the $3,931.00 VPOC.

In case of higher prices, participants may look to auction as high as the $3,948.00 VPOC and $3,970.75 rally-high. In case of lower prices, participants can look to the $3,904.25 low-volume area (LVNode) for a response.

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.

More On POCs: POCs (like HVNodes described above) 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.

Levels Of Interest: $3,931.00 VPOC.

Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Categories
Commentary

Market Commentary For 3/16/2021

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

What Happened: U.S. stock index futures auctioned higher ahead of releases on retail sales, industrial production, and a Federal Reserve policy meeting.

What Does It Mean: Alongside positive news concerning vaccines, stimulus, and improved economic data, U.S. index futures recovered from their most recent swing low.

As stated yesterday, given the speed and distance of the S&P 500’s recovery since March 4, the potential for balance, or two-sided trade is high as participants look for more information to base their next move on.

In support of this thesis are market liquidity metrics which suggested (1) buying pressure was leveling out and/or (2) buyers were absorbing resting liquidity (opportunistic selling or selling into strength), while speculative options activity appeared muted.

Graphic: Market liquidity for the SPDR S&P 500 ETF Trust (NYSE: SPY), one of the largest ETFs that track the S&P 500 index.

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open just outside of prior-range, suggesting the potential for immediate directional opportunity.

During Monday’s trade, participants rallied the S&P 500 into the close, leaving another 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).

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 finds acceptance (i.e., resolves higher or sideways), above the $3,947.74 spike base. In the worst case, the S&P 500 finds acceptance (i.e., resolves lower or sideways) below the $3,947.74 spike base.

In case of higher prices, participants may look to auction as high as the $3,947.25 price extension, a typical recovery target.

In case of lower prices, participants would look for responses at the $3,931.00 Virgin Point Of Control (VPOC) and $3,898.25 high-volume area (HVNode).

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.

More On POCs: POCs (like HVNodes described above) 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.

Levels Of Interest: $3,947.74 spike base.

Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Categories
Commentary

Market Commentary For 3/15/2021

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

What Happened: U.S. stock index futures auctioned within prior range, albeit slightly higher, as investors position themselves for key central bank meetings, later this week.

What Does It Mean: Last week, U.S. stock index futures recovered alongside (1) the enactment of a massive, $1.9 trillion coronavirus relief plan, (2) convergence in the 10-year Treasury rate and S&P 500 dividend yield, as well as (3) a material divergence in bond and equity market volatility.

Given the speed and distance of the S&P 500’s recovery since March 4, a swing low, the potential for balance, or two-sided trade is high as participants look for more information to base their next move on.

In support of this thesis are market liquidity metrics which suggested (1) buying pressure was leveling out and/or (2) buyers were absorbing resting liquidity (opportunistic selling or selling into strength), while speculative options activity was concentrated on the put-side. 

What To Expect: Monday’s regular session (9:30 AM – 4:00 PM ET) will likely open inside of prior-range, suggesting a low potential for immediate directional opportunity.

During Friday’s trade, participants rallied the S&P 500 into the close, leaving an 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).

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 finds acceptance (i.e., resolves higher or sideways), above the $3,928.50 spike base. In the worst case, the S&P 500 finds acceptance (i.e., resolves lower or sideways) below the $3,928.50 spike base.

In case of higher prices, participants may look to auction as high as the $3,947.25 low-volume area (LVNode), which corresponds with a set of weak, overnight highs that likely will not last, and the $3,959.25 overnight, all-time rally high.

In case of lower prices, participants would look for responses at the $3,917.00 Virgin Point Of Control (VPOC) and $3,898.25 high-volume area (HVNode).

More On Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) 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.

More On POCs: POCs (like HVNodes described above) 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.

Levels Of Interest: $3,928.50 spike base.

Profile overlays on a 30-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Categories
Commentary

Market Commentary For The Week Ahead: ‘Mostly Sunny’

Key Takeaways:

  • $1.9T relief package is enacted.
  • Inflation to print past Fed goal.
  • Policy actions to limit volatility.
  • Potential for late-March selling.
  • Bond, equity volatility diverged.
  • U.S. to lead economic recovery.

What Happened: U.S. stock index futures closed higher, last week.

This came alongside (1) the enactment of a massive, $1.9 trillion coronavirus relief plan, (2) convergence in the 10-year Treasury rate and S&P 500 dividend yield, as well as (3) a material divergence in bond and equity market volatility.

What Does It Mean: The pandemic disrupted the global economy, hitting the hardest airlines, leisure facilities, energy, manufacturing, and restaurants, among other industries.

The stock market tumbled, as a result, and the subsequent recovery was lead by technology, which delivered its strongest annual average return since the Global Financial Crisis (GFC).

Now, as virus case counts fall, the pace of vaccinations accelerates, and massive coronavirus relief bills are passed, shares of stocks in beaten-down industries are becoming favorites.

This reopening trade, as it’s called, comes alongside projections the U.S. will lead the 2021 global economic recovery.

Amidst the bullishness, the yield on a 10-year Treasury, a risk-free asset, which was — per Axios — “artificially depressed by the flight-to-quality trade during the coronavirus pandemic, as well as by large-scale purchases by the Federal Reserve,” converged with S&P 500’s dividend yield. 

Graphic 1: Goldman Sachs Group Inc (NYSE: GS) projects yields to rise and the curve to steepen.

Typically, the S&P 500’s dividend yield is less than the risk-free rate because investors expect to earn less in dividends than they would holding the same amount in bonds, absent rising stock prices.

Values are derived using the discounted cash flow calculation; as interest and discount rates go up, the present value of future earnings goes down, which will drag stock prices, especially in growth categories, as evidenced by the Nasdaq-100’s relative weakness.

Graphic 2: Nordea Group expects inflation to print above the Federal Reserve’s target, soon.

Still, historically speaking, rising yields aren’t that harmful. Looking as far back as the 1960s, there are 13 periods in which the yield on a 10-year Treasury rose by at least 1.5%.

“In nearly 80% (10 of 13) of the prior periods, the S&P 500 Index posted gains as rates rose, as it has so far in the current rising-rate period,” a statement by LPL Financial said. “In fact, the average yearly gain for the index during the previous rising-rate periods, at 6.4%, is just a little lower than the historical average over the entire period of 7.1%, while rising rates have been particularly bullish for stocks since the mid-1990s.”

Further, despite an attempted pricing in of rising debt levels and inflation, a divergence in bond and equity market volatility persists.

Historically, fear across markets tends to move in tandem. That’s not the case today.

Graphic 3: Divergence in volatility across the bond and equity market. 

What To Expect: Balance, or two-sided trade as participants look for more information to base their next move on after last week’s rapid recovery.

Coming into the weekend, market liquidity suggested (1) buying pressure was leveling out and/or (2) buyers were absorbing resting liquidity (opportunistic selling or selling into strength), while speculative options activity was concentrated on the put-side. 

Graphic 4: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust (NYSE: SPY), for the week ending March 12, 2021. Activity in the options market was primarily concentrated in short- and long-dated tenors, in strikes as low as $353, which corresponds with $3,530.00 in the cash-settled S&P 500 Index (INDEX: SPX).

What To Do: In the coming sessions, participants will want to pay attention to the VWAP anchored from the $3,959.25 overnight rally-high, as well as the $3,840.00 high-volume area (HVNode).

Volume-Weighted Average Prices (VWAPs): Metrics highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

More On Volume Areas: A structurally sound market will build on past areas of high-volume (HVNode). Should the market trend for long periods of time, it will lack sound structure (identified as a low-volume area (LVNode) 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.

More On Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

In the best case, the S&P 500 remains above the $3,840.00 volume area, and VWAP anchored from the $3,959.25 peak. This would suggest buyers, on average, are in control and winning since the February 15 rally-high.

Any activity below the VWAP anchored from the $3,959.25 peak may (1) leave the $3,840.00 HVNode as an area of supply, offering initiative sellers favorable entry and responsive buyers favorable exit.

Graphic 5: Profile overlays on a 30-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Graphic 6: 4-hour profile chart of the Micro E-mini S&P 500 Futures.

Conclusions: The go/no-go level for next week’s trade is $3,840.00.

Any activity at this level suggests market participants are looking for more information to base their next move. Anything above (below) this level increases the potential for higher (lower). 

Levels Of Interest: $3,840.00 HVNode.

Photo by Aleksandar Pasaric from Pexels.

Categories
Commentary

Market Commentary For 3/12/2021

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

What Happened: Ahead of Producer Price Index and University of Michigan Consumer Sentiment releases, U.S. stock index futures fell, overnight.

What Does It Mean: The drop comes after a significant recovery.

The S&P 500 nearly took out its overnight all-time high at $3,959.25, while the Russell 2000 established a new high and Nasdaq-100 remained generally weak, in comparison.

More On Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

Coming into Friday’s session, market liquidity suggested (1) buying pressure was leveling out and/or (2) buyers were absorbing resting liquidity (opportunistic selling or selling into strength), while speculative options activity was concentrated on the put-side. These dynamics suggest range-bound trade in the coming session(s) as participants look to establish balance, two-sided trade after a rapid recovery.

In simpler terms, the market may start to base for its next move.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM ET) will likely open outside of prior-range and -value, suggesting the potential for immediate directional opportunity.

During Thursday’s trade, the best case outcome occurred, evidenced by initiative trade above the $3,934.25 ledge, that failed to retake the $3,959.25 overnight rally high (ONH) by less than one point.

More On Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack confidence to continue the discovery process. The ledge will either hold and force participants to liquidate (cover) their positions, or crack and offer support (resistance).

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 trades sideways or higher, as high as the $3,934.25 ledge, which corresponds with a prominent low-volume area and VWAP anchored from Thursday’s peak.

In the worst case, participants lack the conviction to maintain higher prices, evidenced by trade below the $3,902.25 low-volume area (LVNode). In the latter case, participants may target the $3,861.25 LVNode.

Volume-Weighted Average Prices (VWAPs): Metrics highly regarded by chief investment officers, among other participants, for quality of trade. Additionally, liquidity algorithms are benchmarked and programmed to buy and sell around VWAPs.

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.

Levels Of Interest: $3,934.25 ledge, $3,902.25 LVNode, $3,861.25 LVNode.

Profile overlays on a 30-minute candlestick chart of the Micro E-mini S&P 500 Futures.
Categories
Commentary

Market Commentary For 3/11/2021

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

What Happened: After a report on U.S. consumer prices helped calm fear around rising inflation, U.S. stock index futures auctioned higher.

What Does It Mean: On a relative basis, the Nasdaq-100 is weaker, while the S&P 500Russell 2000, and Dow Jones Industrial Average are stronger. This push-pull dynamic, in prior sessions, made it hard for participants to resolve directionally, evidenced by volatility.

Now, it appears that relative strength could be shifting back to the Nasdaq-100, evidenced by supportive market liquidity and option activity dynamics, over the last few sessions.

Important to note is the tenor of the speculative derivatives activity, dominance of put side open interest, and divergent delta in the the S&P 500 and Russell 2000.

These dynamics suggest near-term conviction. In other words, participants with a short-term outlook are dominating recent trade. This is also evidenced by the mechanical trade (e.g., flat highs during Tuesday’s session in the S&P 500, and subsequent end-of-day liquidation that was taken back during Wednesday’s trade).

More On Liquidation Breaks: The profile shape in the S&P 500 suggests participants were “too” long and had poor location.

More On Volume Delta: Buying and selling power as calculated by the difference in volume traded at the bid and offer.

More On Gamma: Gamma is the sensitivity of an option to changes in the underlying price. Dealers that take the other side of options trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.

What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM ET) will likely open outside of prior-range and -value, suggesting the potential for immediate directional opportunity.

During Wednesday’s trade, the best case outcome occurred, evidenced by initiative trade that retook the $3,891.00 spike base.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 trades sideways or higher, as high as the $3,934.25 ledge. Auctioning above the ledge may portend a fast move to the $3,959.25 overnight rally high (ONH).

More On Ledges: Flattened area on the profile which suggests responsive participants are in control, or initiative participants lack confidence to continue the discovery process. The ledge will either hold and force participants to liquidate (cover) their positions, or crack and offer support (resistance).

More On Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

In the worst case, participants lack the conviction to maintain higher prices, evidenced by trade below the $3,907.25 high-volume area (HVNode). Any trade below the $3,861.25 low-volume area (LVNode) would put in question this most recent 4-day recovery.

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.

Levels Of Interest: $3,959.25 ONH, $3,934.25 ledge, $3,907.25 HVNode, $3,861.25 LVNode.

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Commentary

Market Commentary For 3/10/2021

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

What Happened: U.S. stock index futures rotated within prior range, ahead of the approval of $1.9 trillion in COVID-19 relief.

What Does It Mean: Potential for higher, given a clear break in the S&P 500’s technical downtrend, during Tuesday’s regular trade.

That said, participants ought to watch out for volatility, given key economic releases, as well as the passage of a stimulus bill.

In regards to recent market liquidity metrics, speculative derivatives activity, as well as the inventory positioning of market participants, caution is warranted.

What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM ET) will likely open within the prior day’s spike liquidation, inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

During Tuesday’s trade, the best case outcome occurred, evidenced by the S&P 500’s resolve of a multi-session consolidation and initiative trade above the $3,861.26 LVNode.

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.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 resolves higher, evidenced by initiative trade that takes out the $3,891.00 spike base. In the worst case, the S&P 500 resolves lower, evidenced by initiative trade that finds increased participation below the $3,855.00 RTH Low.

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).

In case of upside (downside) resolve, participants may target the $3,959.25 overnight rally high ($3,839.25).

More On Overnight Rally Highs (Lows): Typically, there is a low historical probability associated with overnight rally-highs (lows) ending the upside (downside) discovery process.

Levels Of Interest: $3,891.00 spike base (Upside Go/No-Go Level).

Categories
Commentary

Market Commentary For 3/9/2021

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

What Happened: U.S. stock index futures rotated higher, overnight, as bond yields declined and European stocks posted their best gains in months of trade.

What Does It Mean: U.S. stock index futures ended lower, Monday, after responsive sellers stepped in and resolved a morning consolidation.

The volatile price action is happening in the context of rising bond yields — a correlation that has a knack for disappearing, suddenly — and the short-gamma environment.

More On Gamma: Gamma is the sensitivity of an option to changes in the underlying price. Dealers that take the other side of options trades hedge their exposure to risk by buying and selling the underlying. When dealers are short-gamma, they hedge by buying into strength and selling into weakness. When dealers are long-gamma, they hedge by selling into strength and buying into weakness. The former exacerbates volatility. The latter calms volatility.

Furthermore, the economy is poised to take off. Why? Record amounts of stimulus and a country-wide re-opening. Adding, the recent pricing in of rising debt and inflation fears, as a result, is likely nearing an end, based on market liquidity metrics and the inventory positioning of participants.

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open on a small gap, inside of prior-range and -value, suggesting a limited potential for immediate directional opportunity.

During Monday’s trade, the best case outcome occurred, evidenced by rotational trade between the $3,861.25 low-volume area (LVNode) and $3,762.25 high-volume area (HVNode).

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.

For today, participants can trade from the following frameworks.

In the best case, the S&P 500 resolves a multi-session consolidation to the upside, evidenced by initiative trade that finds increased participation (e.g., higher volumes and range expansion) above the $3,861.26 LVNode.

In the worst case, the S&P 500 resolves lower, evidenced by initiative trade that finds increased participation below the $3,839.25 HVNode, a volume-area that ought to offer initiative sellers (responsive buyers) favorable entry (exit).

In case of upside (downside) resolve, participants may target the $3,892.75 HVNode ($3,801.25 LVNode).

Levels Of Interest: $3,861.25 LVNode (Upside Go/No-Go Level).