Notice: To view this week’s big picture outlook, click here.
What Happened: Overnight, U.S. stock index futures auctioned higher on news of COVID-19 vaccine approvals and stimulus progress.
What Does It Mean: Alongside (1) a material divergence in bond and equity market volatility, as well as (2) a convergence in the 10-year Treasury rate and S&P 500 dividend yield, U.S. stock indexes auctioned lower during regular trade, last week.
Aside from the volatility, the S&P 500’s long-term uptrend, and a skewness toward put options suggests the potential for a near-term turn-around.
What To Expect: Monday’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.
Further, because the S&P 500 auctioned above the $3,840.00 high-volume area, or HVNode, attention shifts to the $3,860.75 low-volume area, or 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.
In the best case, the S&P 500 is able to auction and maintain prices above the $3,860.75 LVNode, formed by earlier selling forces.
Auctioning beyond that reference suggests near-term conviction has changed; participants would look for responses at the $3,907.75 HVNode, an area that would offer initiative buyers (responsive sellers) favorable exit (entry).
In the worst case, the S&P 500 auctions below the $3,840.00 HVNode.
In such case, initiative sellers would be emboldened; participants may look to repair the gap below $3,785.00.
Levels Of Interest: $3,860.75 LVNode.