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Market Commentary For 12/24/2020

Holiday Note: Thank you for your support! Wishing you and your closest good health and happy holidays!

What Happened: As Britain and the European Union hone in on a trade deal, while Democrats in the U.S. House of Representatives aim to win quick passage of legislation providing $2,000 direct payments to Americans, U.S. index futures point to an open in prior-balance and -range.

What Does It Mean: During Wednesday’s session, participants in the S&P 500 failed to auction and sustain prices above the $3,691.00 balance boundary.

Adding, given the holiday trade schedule, tapering volumes, as well as the return to balance after responsive selling surfaced at the $3,700.00 high-volume node (HVNode), odds do not favor directional resolve.

What To Expect: In light of flat overnight trade, after Wednesday’s session failed to muster increased participation above the $3,691.00 boundary, the following frameworks apply for today’s trade.

In the best case, the S&P 500 remains above its $3,667.75 HVNode, and continues to balance. As stated earlier, given the tapering volume and holiday, the odds of directional resolve are quite low. Two go, no-go levels exist; trade that finds increased involvement above $3,691.00 and below $3,667.75 would suggest a change in conviction. Anything in-between favors responsive trade.

Levels Of Interest: The $3,691.00 boundary and $3,667.75 HVNode.

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Market Commentary For 12/23/2020

What Happened: After a day of balance, and a brief overnight liquidation alongside news that President Donald Trump would not sign a coronavirus relief bill until the size of stimulus checks is increased, U.S. index futures rebounded, with the S&P 500 returning to the $3,691.00 ledge, a level that’s repeatedly attracted responsive sellers.

What Does It Mean: During Tuesday’s session, participants accepted the prior day’s recovery, evidenced by the two-sided trade at prices where the most activity occurred during the prior day, or point of control (POC).

Given that participants deem the high end of Monday’s range fair to do business in, participants will come into Wednesday’s session knowing that the $3,691.00 high-volume ledge is a key upside reference. The aforementioned ledge denotes a pause in discovery, likely attributable to the declining participation ahead of the holiday weekend.

That said, below the ledge, responsive buyers continue to resurface at the $3,667.75 high-volume node (HVNode) on long liquidations (i.e., those events that are caused by overly committed short-term participants that trim positions in panic because they lack the wherewithal or conviction to follow-through).

Pictured: Visual of /MES $3,691.00 ledge.

What To Expect: In light of the overnight recovery and trade near the $3,691.00 ledge, the following frameworks apply for today’s trade.

In the best case, buyers hold the the index above its $3,667.75 HVNode. Holding said reference would be indicative of continued balance after Monday’s recovery; in such case, participants would look for signs of follow-through above the $3,691.00 ledge. Once the ledge cracks (i.e., participants initiate and accept, spend more than 15-minutes above the level), it ought to (1) offer support and (2) draw in buyers to continue the upside discovery process up to, at least, the $3,700.00 and $3,707.75 HVNodes.

Anything higher targets the $3,724.25 overnight rally high.

Levels Of Interest: The $3,691.00 ledge, $3,667.75, $3,700.00 and $3,707.75 HVNodes, as well as the $3,724.25 overnight high.

Bonus: Big-picture breakout remains intact. See below for opportunities unfolding.

Pictured: Daily candlestick chart of the cash S&P 500 Index
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Market Commentary For 12/4/2020

What Happened: After news that Pfizer Inc (NYSE: PFE) would slash its 2020 vaccine production target caused U.S. stock index futures to liquidate Thursday afternoon, prices have since recovered, suggesting the news was immaterial.

The S&P 500, in particular, remains in balance and range, further accepting Monday’s upside break.

What Does It Mean: During Thursday’s regular trading in the S&P 500, short-term participants were not able to muster the conviction to break through to new highs, as evidenced by a lack of value separation and excess.

Moreover, the afternoon long-liquidation on Pfizer news brought the S&P 500 back into an area that’s reflective of its most recent perception of value (i.e., HVNode). Responsive buyers surfaced on the news event, returning the market back to its highs after the lower prices offered favorable entry.

It’s important to note that the pullback halted at key technical level (i.e., LVNode near $3,655). This activity confirms that participation in the market is overwhelmingly short-term. Institutions do not transact at exact technical levels.

Further, the lack of excess at the high end of the 3-day balance area suggests the upside discovery process is likely not over. Adding to that, the market is stuck in a long-gamma environment; in such an environment, dealers hedge their exposure by selling into strength and buying into weakness. As a result, volatility is suppressed and the market pins or slowly rises in a range-bound fashion, as we’re seeing.

So, given that the market lacks breadth, technical forces (e.g., dealer hedging) will have a much greater impact on price action than most fundamental events, such as Thursday’s Pfizer news.

What To Expect: Going into today’s session, participants know that (1) the S&P 500 is trading within a three-day balance area above the $3,640 ledge, (2) technical forces take precedence over fundamentals, (3) and there is minimal excess at the highs. As a result, participants should default to trading responsively, unless either the all-time rally high ($3682.00) or low-volume ledge ($3,640) is broken.

Trading beyond either balance boundary may portend continued directional resolve. Breaking lower, participants should look for a response at the $3,630 high-volume area and $3,600 five-day balance boundary. Breaking higher, participants should look for continued upside as high as the $3,700 strike, the site of multiple price projections.

Levels Of Interest:  $3,682 and $3,640 balance area boundary.

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Market Commentary For 12/3/2020

What Happened: Ahead of fundamental data releases and stimulus news, U.S. stock index futures are trading within a two-day balance area after successfully defending Monday’s upside break.

What Does It Mean: During Wednesday’s regular trading in the S&P 500, participants defended multiple attempts to auction back into last week’s balance area, marked by the $3,640 ledge.

Further, despite a lack of breadth, given the market’s response to the ledge, the odds of further upside have risen. Adding, remaining above the upper balance boundary — $3,640 ledge — the bullish bias remains. Auctioning below the upper balance boundary would be the most negative outcome, and could foreshadow a test as low as the lower balance area boundary, near $3,590.

Going into today’s session, participants know that (1) the S&P 500 is trading within a two-day balance area and (2) buyers remain in control. As a result, auctioning above the $3,677 boundary, participants should follow along the initiative activity, targeting prices as high as the upside projections near $3,700. Auctioning below the $3,640 boundary, puts the rally on hold, and suggests further balance.

Levels Of Interest: $3,677 and $3,640 two-day balance boundary.

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‘Dualism’: Market Commentary For The Week Ahead

Key Takeaways:

  • Decline in cash levels is a sign of stretched sentiment. 
  • Positioning: Odds of sustained directional resolve low.
  • Potential confirmation of multi-month balance-break.

What Happened: During last week’s shortened holiday trade, U.S. index futures broke out to new all-time highs.

What Does It Mean: After Tuesday’s initiative upside drive alongside news that provided clarity on the election transition, participants rotated back over the $3,580 balance-area boundary, invalidating the prior week’s initiative selling activity. Thereafter, conviction disappeared and the market remained range-bound, as evidenced by a non-participatory delta (i.e., the non-presence of committed buying) and mechanical trade (i.e., low-excess at the edges of developing balance).

Pictured: Profile overlays on a 15-minute candlestick chart of the Micro E-mini S&P 500 Futures

What To Expect: During Friday’s shortened holiday session, the S&P 500 remained in balance, further auctioning and accepting value into Tuesday’s excess high, which marked an end to the upside discovery process. 

Given that initiative buyers remained in control after auctioning into the micro-composite high-volume node at $3,631, the fairest price to do business after Tuesday’s upside drive, participants come into Monday’s session knowing the following: 

  1. The amount of cash investors are holding in their portfolios fell to levels last seen prior to the February sell-off. 
  2. Market sentiment, as represented by Citigroup Inc’s (NYSE: C) Panic/Euphoria Model, is historically stretched.
  3. Tuesday’s upside impulse, through the low-volume node at $3,580, was reminiscent of short-term, momentum-driven buying. 
  4. Holiday trade was dominated by low-volume and responsive participation, implying the non-presence of conviction and institutions (e.g., funds that transact at non-technical levels).
  5. Positioning suggests dealers are long gamma, meaning they sell into strength and buy into weakness, suppressing volatility and the potential for directional resolve.
Graphic by Spotgamma, taken from The Market Ear

Therefore, given the acceptance of higher prices, the following frameworks for next week’s trade apply.

If participants manage to spend time and build value above the $3,631 micro-composite high-volume node, then initiative buyers remain in control — nearest targets include the $3,655 and $3,668.75 rally highs.

Otherwise, the auction ought to find responsive buyers near the high-volume node. An initiative drive below that figure would put the rally on hold, and would target first $3,620, and then the node near $3,610.

Conclusion: Though sentiment and positioning imply limited potential for further upside, the market remains in a strong technical uptrend bolstered by factors including a divided government, vaccine administration, rebound in profits, low rates, and a small rise in the yield curve.

As of now, the S&P 500 is on the verge of confirming a multi-month balance-break.

Pictured: Daily candlestick chart of the cash S&P 500 Index

Levels Of Interest: Micro-composite HVN at $3,631, the $3,655 and $3,668.75 rally highs, as well as the nodes near $3,620 and $3,610.

Cover photo courtesy by cottonbro from Pexels.

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‘Tug Of War’: Market Commentary For The Week Ahead

Key Takeaways:

  • Sentiment still stretched despite cooling after the vaccine value rotation on news of further lockdowns, which could have a material consequence on the economic recovery.
  • The pandemic-induced liquidation of businesses not equipped to survive disruption and the accelerated adoption of new technology suggests growth stocks have staying power.
  • Broad-market equity indices ended in a larger balance area suggesting further acceptance of the positive response to upside earnings surprises, a divided government, and vaccine results. 
  • Friday’s monthly options expiry may mark a decisive move depending on how existing derivatives exposure is rolled forward and the presence of impactful news.
  • Institutions differ in opinion over the market’s strength into year-end.

What Happened: Following the post-election rally, U.S. index futures remained range-bound as sentiment cooled in the face of new lockdowns and fading stimulus hopes.

What Does It Mean: After Monday’s initiative upside drive on news that another COVID-19 coronavirus vaccine developed by Moderna Inc (NASDAQ: MRNA) was 94.5% effective at preventing cases of the virus, U.S. index futures pared their advance, as participants struggled to maintain higher prices, evidenced by a divergent delta (i.e., the non-presence of committed buying) and mechanical trade (i.e., low-excess at the edges of balance).

Pictured: Profile overlays on a candlestick chart of the Micro E-mini S&P 500 Futures.

What To Expect: On Friday’s end-of-day sell-off away from value, the S&P 500 closed within a prior balance area marked by the $3,580 spike base and $3,506.25 excess low. 

Given that Friday’s session failed to retake Wednesday’s spike liquidation, auctioning back into the micro-composite high-volume node at $3,557, the fairest price to do business during the prior week’s balancing activity, initiative sellers remain in control.

As a result, participants come into Monday’s session knowing the following:

  1. Prior end-of-day spikes were the result of weak-handed, short-term buyers liquidating in panic.
  2. The selling did not attract increased participation (i.e., price diverged from value).
  3. Friday’s monthly options expiry may mark a decisive move depending on how existing contracts are rolled forward. Given that $3,600 is the highest gamma strike, the probability of sustained directional resolve, absent material news, is much lower.
Graphic by SpotGamma.com.

Therefore, in light of a weak response to the $3,557 high-volume node and Friday’s options expiry, participants can carry forward the following frameworks for next week’s trade. 

If participants manage to spend time and build value in or below the prior selling activity, then initiative sellers remain in control and the liquidation could be the beginning of a new trend to the downside, confirmed by range expansion beyond the $3,506.25 excess low. Otherwise, there is the potential for a failed break-down in which participants manage to rotate back over the $3,580, a balance area boundary. 

Conclusion: Friday’s monthly options expiry may mark the beginning of a decisive move. The only thing that’s needed? A catalyst. 

In case of sustained upside, Goldman Sachs Group Inc (NYSE: GS) gives the S&P a $3,700 target on an expectation the v-shape recovery will continue into next year. Contributing factors including a divided government, vaccine administration, rebound in profits, low rates, and a small rise in the yield curve. 

Graphic by Goldman Sachs, retrieved from The Market Ear.com

In case of further balance or selling, JPMorgan Chase & Co (NYSE: JPM) sees vulnerabilities as mutual funds look to sell $160 billion in global equities to revert to their target 60:40 allocation.

Levels Of Interest: Micro-composite HVN at $3,557, the $3,506.25 excess low, as well as the $3,580 balance-area low.

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Market Commentary For 11/18/2020

What Happened: Alongside news Pfizer Inc (NYSE: PFE) would apply for emergency authorization within days, U.S. index futures auctioned to the high end of this week’s range, suggesting further balance and acceptance of higher prices.

What Does It Mean: As of now, the S&P 500 index future is trading near $3,620, the high-end of the weekly range that’s been dominated by short-term money. This is evidenced by the weak, mechanical highs and lows over the past two days.

Given the non-presence of higher-time frame participation, there is little directional conviction going into Wednesday’s regular trading session.

Further, after rejecting the low-volume area beneath $3,600, the S&P 500 remains in balance; as a result, if participants manage to spend time and build value outside of the balance area between $3,585 and $3,630, then odds favor range expansion. Otherwise, the market will remain in balance, favoring short-term, responsive trade.

Levels Of Interest: 100% projection of the balance-area at $3,650, $3,630 balance-area high, $3,585 balance-area low.

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‘Sentiment Stretched’: Market Commentary For The Week Starting 11/15/2020

Key Takeaways:

  • A resurgence in cases of the COVID-19 coronavirus portends restrictions on mobility which could have material consequences on the economic recovery.
  • Sentiment appears stretched ahead of data on retail sales, housing, trade, manufacturing, services, as well as resolve of election-related uncertainty and fiscal stimulus.
  • Despite a positive response to upside earning surprises, divided government, and vaccine results, the potential exists for a failed higher time frame breakout.

What Happened: Following the post-election rally, U.S. index futures extended their gains on news that a vaccine developed by Pfizer Inc (NYSE: PFE) and BioNTech SE (NASDAQ: BNTX) was more than 90% effective in preventing cases of the COVID-19 coronavirus.

Though the response resulted in the upside break of a multi-month balance area, in subsequent days, index futures pared gains, weighed down by the innovation-driven technology sector.

What Does It Mean: After Monday’s initiative upside drive on coronavirus vaccine optimism, an end-of-day spike liquidation preceded a week-long, range-bound rotation, and suggested the possibility of a failed higher time frame breakout.

What To Expect: On Friday’s end-of-day rally away from value, the S&P 500 closed at a new all-time high, just above the balance area marked by the $3,580 spike base and $3,506.25 excess low. 

If participants manage to spend time and build value outside of the balance area, then the odds favor continued upside. Otherwise, the market will return to balance, favoring short-term, responsive trade as low as the aforementioned excess low. 

Levels of Interest: Four-day balance-area between the $3,580 spike base and $3,506.25 excess low.

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Market Commentary For 11/13/2020

What Happened: During Thursday’s regular trading in the S&P 500, market participants lacked conviction to break above the initial balance, which lead to a liquidation that found buyers just above Tuesday’s excess low.

Alongside news that president-elect Joe Biden cemented his Arizona victory and U.S. states began reimposing COVID-19 coronavirus restrictions, buyers cautiously extended range overnight, auctioning toward the upper-end of the three-day balance area.

What Does It Mean: As of now, the market remains rotational between the $3,506 excess low and $3,580 spike base.

Further, the market’s failure to negate Monday’s end-of-day spike points the possibility of a failed higher time frame breakout, and keeps initiative sellers in control. Trade below the aforementioned excess low would confirm the failure of a higher time frame breakout.

Moreover, given the likelihood of an open in prior-range and -value, there’s the potential for more balance and rotation in an area where the greatest volume of trade took place over the past three days. This scenario is supported by current positioning. If the market was to initiate outside of this area, then participants will have conviction to follow-through (in whatever direction that may be).

As a result, participants start the day off with a clear framework; in such case, if price is accepted outside of the balance area, we should be inclined to place trades in the direction of the activity. Otherwise, the market will stay range-bound, favoring short-term, responsive trade.

Levels Of Interest: $3,580 spike, $3,506 excess low, the high-volume areas at $3,600, $3,540, and $3,500, as well as the low volume areas at $3,520, $3,575, and $3,608.

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Market Commentary For 11/12/2020

What Happened: Wednesday’s trade built on Tuesday’s response, establishing higher value in the S&P 500, but failed to negate Monday’s end-of-day spike, suggesting initiative sellers remain in control. Sellers extended range overnight, auctioning into the high-volume area that corresponds with the October rally-high.

What Does It Mean: As of now, acceptance of the spike remains intact, confirmed with the market’s failure to trade through the low-volume area beneath $3,580. Adding, the possibility of a failed higher time frame breakout remains, confirmed by trade below the $3,506.25 excess low.

Further, given the likelihood of an open in prior-range and -value, there’s the potential for balanced, rotational trade in an area that represents where the greatest volume of trade took place over the past two days. If the market was to initiate outside of this area, then participants will have conviction to follow-through (in whatever direction that may be).

As a result, participants start the day off with a clear framework; in such case, if price is accepted outside of the balance area, we should be inclined to place trades in the direction of the activity. Otherwise, the market will stay range-bound, favoring short-term, responsive trade.

Levels Of Interest: $3,580 spike, $3,506.25 excess low, the high-volume areas at $3,600, $3,540, and $3,500, as well as the low volume areas at $3,520, $3,575, and $3,608.