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Market Commentary For 1/21/2021

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

What Happened: After a day of active discovery, U.S. index futures established a new all-time high in the overnight session, before backing off into prior-range and -value.

What Does It Mean: Initiative buyers extended the S&P 500’s rally, breaking the index above its $3,824.25 balance-area high (BAH). Later, market participants found acceptance near the $3,850.00 price extension, an upside target.

What To Expect: Thursday’s regular session (9:30 AM – 4:00 PM ET) will likely open close to prior-balance and -range, implying higher volatility at the open.

Few dynamics to note: (1) poor structure in prior sessions, as evidenced by the low-volume areas (LVNodes) in the graphic above, (2) a new overnight all-time high (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), (3) a break that finds acceptance outside of a larger balance-area portends continuation up to the 100% price projection, or double the width of the balance-area.

In the best case, given that the open will occur after a day of active discovery, participants can expect overnight balancing activity to carry on. If initiative buying was to take out the $3,859.75 overnight high (ONH), then participants ought to target the $3,884.75 balance-break projection.

The go/no-go level for further upside is the $3,859.75 (ONH). The go/no-go level for downside is the $3,824.25 balance-area high (BAH). Anything in-between classifies as rotation, or the potential repair of poor structures left in the session prior.

Noting: Low-volume areas denote conviction and should hold against future probes. If a market was to break into a low-volume area, then odds favor discovery through the entire area, to the next high-volume concentration, or the market’s most recent perception of value.

Levels Of Interest: $3,824.25 BAH, $3,859.75 ONH, $3,884.75 projection.

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