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Market Commentary For 1/4/2021

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

What Happened: Alongside hopes of a vaccine-led recovery, U.S. index futures tested higher overnight, breaking out of last week’s balance area.

What Does It Mean: Thursday’s initiative buying in the S&P 500, above the $3,731.00 high-volume node (HVNode), diverged prices from value and carried forward into Sunday night trade, the most positive outcome.

What To Expect: Monday’s regular session (9:30 AM – 4:00 PM ET) will open outside of prior-balance and -range.

This comes after (1) short-term, technically-driven market participants defended a gap beneath the $3,714.50 weak low, and (2) upside resolve on tapering, holiday volumes.

Given the break, participants will come into today’s session with a clear framework:

In the best case, cognizant of the overnight gap’s size, odds favor the S&P 500 remain above the low-volume area beneath $3,759.50. Low-volume areas denote directional conviction and, like excess, should offer support. However, probing into the low-volume area would portend swift follow-through. In such case participants would look for a response at the prior session’s high at $3,752.75.

Noting: In most cases, a break-out (i.e., gap) from balance is usually the start of a short-term auction. Therefore, placing trades in the direction of the gap is the normal course of action. Further, gaps tend to fill within the first half-hour of regular trade (9:30 AM – 4:00 PM ET). The longer a gap holds, however, the higher odds of continuation. Should responsive sellers auction through the entire gap, then conditions have changed.

As stated in yesterday’s big picture outlook, trade between $3,747.75 and $3,714.50 ought to be responsive. Auctioning beyond either reference would end the bracketing process and portend continuation. As of now, the S&P 500 has initiated through the higher reference; monitor for signs of continuation.

Levels Of Interest: Overnight high at $3,773.25, $3,759.50 LVNode, regular trade high at $3,752.75.

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