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Market Commentary For 3/2/2021

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

What Happened: After a strong trend day, overnight, U.S. stock index futures fell.

What Does It Mean: As leading economic indicators point to expansion, investors are looking for continued upside.

This comes alongside (1) a material divergence in bond and equity market volatility, as well as (2) a recent convergence in the 10-year Treasury rate and S&P 500 dividend yield. The resolve of these aforementioned dynamics, and positioning, set the market up for a volatile, near-term turn-around.

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

During Monday’s trade, the best case outcome occurred: the S&P 500 was able to auction and maintain prices above the $3,860.75 low-volume area, or LVNode. Thereafter, participants, as expected, responsively sold the probe into $3,907.75, a high-volume area (HVNode) which offers initiative buyers (responsive sellers) favorable exit (entry).

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 Tuesday, in the best case, the S&P 500 is able to maintain higher prices, either rotating within yesterday’s trading range, above the $3,860.75 LVNode, or auctioning past the $3,907.75 HVNode. In case of continued upside, a test of the $3,934.25 ledge is likely.

In the worst case, the S&P 500 is not able to maintain higher prices, evidenced by an auction that takes out Monday’s regular-trade low (RTH Low), or $3,858.00. In such a case, participants would look for a response near the $3,837.75 HVNode. Auctioning beneath the HVNode, puts in play the $3,785.00-$3,777.00 gap.

Levels Of Interest: $3,858.00 RTH Low.

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Commentary

Market Commentary For 3/1/2021

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.

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Commentary

Market Commentary For The Week Ahead: ‘Missed Approach’

Key Takeaways:

  • High doses of stimulus yet to be fully felt.
  • Hedge funds add to long, short exposure.
  • Economies eye growth, uneven recovery.
  • Powell kept stressing inflation downsides.
  • Traders price in a quarter-point rate hike.
  • 10-yr yield, S&P 500 dividend yield cross.
  • Bond, equity market volatility separations.
  • JPMorgan does not see a market bubble.

What Happened: U.S. stock index futures auctioned lower.

This came 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.

What Does It Mean: Equity traders began pricing in the risk of a rapid move up in rates, due to concerns over bond values, as a result of rising debt levels and inflation.

Additionally, 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.

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 seen.

Still, despite the pricing in of rising debt levels and inflation, a divergence in bond and equity market volatility persists. In such a case, market participants ought to widen their outlook; there is some potential for risk asset capitulation in the present down cycle.

Graphic 1: Divergence in volatility across the bond and equity market. 

Moving on, it’s important to take note of the market’s unpinning, after February’s monthly options expiration (i.e., OPEX), as well as the long-term trend.

More On 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.

Aside from OPEX, last week’s volatility did not disrupt the S&P 500’s long-term uptrend (Graphic 2), and a skewness toward put options — evidenced by Graphic 3 and market gamma — suggests the potential for a near-term turn-around.

Graphic 2: Long-term uptrend in the cash-settled S&P 500 Index (INDEX: SPX) is intact.
Graphic 3: 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 February 26, 2021. Noting activity in short- and long-dated tenors, near the $380, a strike that corresponds with $3,800.00 in the cash-settled S&P 500 Index (INDEX: SPX).

What To Expect: Directional resolve, given the S&P 500’s rotation near a prominent high-volume area, or HVNode (Graphic 4), and an overnight rally-high at $3,959.25.

More On Overnight Rally Highs: Typically, there is a low historical probability associated with overnight rally-highs ending the upside 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.
Graphic 4: 4-hour chart of the Micro E-mini S&P 500 Futures.

What To Do: In coming sessions, participants will want to pay attention to the VWAP anchored from the $3,959.25 peak and $3,657.00 low, as well as the $3,840.00 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.

In the best case, the S&P 500 opens and remains above the $3,840.00 volume area.

Additionally, auctioning above the $3,875.75 VWAP would suggest buyers, on average, are in control and winning, since the February 15 rally high.

Auctioning beneath $3,785.00 would (1) leave the $3,840.00 HVNode as an area of supply — offering initiative sellers favorable entry and responsive buyers favorable exit — and (2) portend repair of poor structures (e.g, the $3,785.00-$3,777.00 gap) left in the wake of a prior advance.

In such a case, participants should look to the next area of high-volume (i.e., $3,794.75 and $3,727.75) for favorable entry and exit.

Graphic 5: Profile overlays on a 65-minute candlestick 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 Sohel Patel from Pexels.

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Market Commentary For 2/11/2021

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

What Happened: After a volatile Wednesday, U.S. stock index futures rose alongside fiscal stimulus and vaccine optimism, ahead of releases that would shine light on the labor market recovery.

What Does It Mean: After a gap open, participants sold stock indexes into prior value, yesterday.

This comes ahead of the large February monthly options expiration (OPEX), after which, the interest at the $3,900.00 S&P 500 option strike will roll-off. As a result, stickiness near the $3,900.00 high-volume area (HVNode) will likely cease in the absence of option hedging requirements.

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. 
Pictured: Micro E-mini S&P 500 Future.

Further, we have numerous pieces of context to unpack prior to getting into today’s outlook on trade.

First, the v-pattern recovery after the recent de-risking event suggests room for higher. Second, the market is stuck in a long-gamma environment that favors less volatility (as witnessed during Wednesday’s muted intra-day sell-off and recovery). Third, the S&P 500 is trading just shy of $3,940.00, a primary upside target based on a multi-month balance-area projection.

More On The V-Pattern: A pattern that forms after a market establishes a high, retests some support, and then breaks above said high. In most cases, this pattern portends continuation. 

More On Gamma: Gamma is the sensitivity of an option to changes in underlying price. Dealers that take the other side of option 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.
Graphic 1: SpotGamma data suggests S&P 500 at or above “Long-Gamma” juncture.

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

Adding, given dynamics discussed in the prior section, the odds of substantial change are low, so long as broad market indices, like the S&P 500, remain range bound. Also, trading in a prominent area of high-volume ($3,900.00) will likely make for a volatile session as such areas denote the market’s most recent perception of value and offer favorable entry and exit, hence the two-sided trade.

Going forward, participants will look to the overnight rally-high at $3,928.25, and low-volume structure beneath the $3,880.00 HVNode, which offered responsive buyers favorable entry during Wednesday’s intraday liquidation break.

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

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

Knowing participants are doing a good job of defending their ~7% advance, a non-typical weekly trading range, after taking out the 127.20% price extension, a typical recovery target, and leaving minimal excess (i.e., a proper end to price discovery) at the high, odds point to the increased potential for higher trade or balance in the coming session(s).

That said, the following frameworks apply.

In the best case, the S&P 500 remains rotational, at or above the $3,900.00 HVNode. In the worst case, any break that finds increased involvement (i.e., supportive flows and delta) below the $3,880.00 HVNode, would favor continuation as low as the $3,830.75 HVNode.

Major change will be identified with trade above the $3,928.25 overnight rally-high, and below the $3,878.50 regular-trade low.

Levels Of Interest: $3,928.25 overnight rally-high, $3,900.00 HVNode, $3,878.50 regular-trade low.

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Market Commentary For 2/8/2021

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

What Happened: U.S. stock index futures established record all-time highs overnight, alongside hopes of a speedy economic recovery, as a result of pandemic relief efforts.

What Does It Mean: After a quick de-risking event and v-pattern recovery, U.S. stock indexes are positioned for further upside, as high as the 100% price projection, which happens to be above $4,000.00, a primary target in the S&P 500. According to The Market Ear, similar risk rallies have happened after hedge fund de-grossing events; now, “Equities are rising along higher yields, dollar and [volatility], and the magic word here is discounting inflation.”

Important to note also is the persistent presence of bearish undercurrents, as evidenced by non-participatory speculative flows and delta, as well as a divergence in the DIX.

More On The V-Pattern: A pattern that forms after a market establishes a high, retests some support, and then breaks above said high. In most cases, this pattern portends continuation. 

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

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.

More On Speculative Flows: Participants looking to capitalize on either upside or downside through the purchase and sale of options, the right to buy or sell an asset at a later date and agreed upon price.

What To Expect: Monday’s regular session (9:30 AM – 4:00 PM ET) will likely open on a gap, outside of prior-balance and -range, which — in normal circumstances — suggests the potential for immediate directional opportunity. However, market participants must not discount how far the discovery process has come.

Over 11 sessions (overnight and regular-trade), participants traversed nearly 7%, a non-typical weekly trading range. Adding, the S&P 500 took out its $3,900.00 price extension (i.e., a typical recovery price target) overnight, before leaving minimal excess at the high (i.e., a proper end to price discovery).

Now, in light of the low historical probability associated with overnight rally-highs ending the upside discovery process, the odds favor (1) backfilling or (2) balance before a participants restart the upside discovery process.

So, in the best case, the S&P 500 does some backfilling to repair poor structures left in the wake of strong initiative buying. In such a case, participants would look for responsive buying to surface at or above the $3,840.00 high-volume area (HVNode). In the worst case, any break that finds increased involvement (i.e., supportive flows and delta) below the $3,840.00 HVNode, would favor continuation as low as the $3,794.75 and $3,727.75 HVNodes.

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.

Today’s go/no-go level is the $3,880.00 HVNode. Below, would portend downside discovery and structural repair. At or above denotes balance, a sign that the market is awaiting new information to make its next move.

Levels Of Interest: $3,880.00 HVNode.

Bonus: It’s very tough to read the market at this juncture.

Buying has run out (as evidenced by the aforementioned bearish undercurrents) and it’s as if market risks are not being priced in correctly, an opinion shared by Nomura’s Charlie McElligott.

According to McElligott, crash and tail risk is holding back dealers from supplying volatility amid “a near-endless need for skew/forward vol/convexity from hedgers.” In an environment in which true fundamental buying is absent, flows as a result of activity in the derivatives market become increasingly impactful.

Adding, as the Heisenberg Report states, “markets are increasingly susceptible to the self-referential, flows-volatility-liquidity feedback loop (colloquially: the ‘doom loop’) and other manifestations of VaR shocks. Long periods of apparent calm hide an underlying fragility in true ‘stability breeds instability’ fashion.”

As a result of this new regime, as stated in the “What To Expect” section above, dealers have a difficult time taking the other side. Due to this, market participants see a persistent bid in volatility, a factor preventing many systematic and hedge fund strategies from going “all-in” on the long-side.

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Market Commentary For 2/2/2021

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

What Happened: Ahead of big earnings from Exxon Mobil Corporation (NYSE: XOM), Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL), alongside stimulus optimism, initiative buyers extended Monday’s broad market rally overnight.

What Does It Mean: Despite being in a good position for downside discovery due to deleveraging, inversion of the VIX term structure, a shift into short-gamma, and a rise in purchases of downside protection with time, market participants responded to probes into prior value.

As a result, stock indexes are at an interesting juncture. The S&P 500, in particular, took back all of Friday’s selling, and is now resting at the $3,794.75 high-volume node (HVNode).

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open on a gap, outside of prior-balance and -range, suggesting the potential for directional opportunity and high volatility.

Currently, the S&P 500 is rotating around the $3,794.75 HVNode.

As stated in the past, high-volume areas can be thought of as building blocks. A structurally sound market will build on past areas of high-volume. If participants were to auction and find acceptance into areas of prior low-volume (as they did Monday), then future discovery ought to be volatile and quick (as it was) as participants look to areas of high-volume for favorable entry or exit (where we are at now).

Given that the market will likely open on another gap, participants should look to whether the advance holds (i.e., a market will transition from up and down, to sideways trade). Holding the gap would suggest initiative buyers are in control, near-term. Auctioning below Monday’s regular-trade high ($3,777.00) would be the most negative outcome.

In the best case, the market will initiate and find acceptance (in the form of rotational trade) above the $3,794.75 HVNode.

In the worst case, responsive sellers appear and continue the downside discovery process. Any break that finds increased involvement below the $3,727.75 HVNode, would favor continuation as low as the $3,611.50 and $3,556.00 HVNodes.

The second to last HVNode corresponds with the $361 SPY put concentration, which may serve as a near-term target, or bottom, for this sell-off, given last week’s activity at that strike (below graphic).

Graphic: Physik Invest maps out the purchase of call and put options in the SPDR S&P 500 ETF Trust, for the week ending January 30, 2021.

The go/no-go for upside is the $3,804.00 overnight-trade high. The go/no-go for downside is $3,717.25 regular-trade low. Anything in-between portends responsive, non-directional trade.

Levels Of Interest: $3,804.00 ONH, $3,717.25 regular-trade low.

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Market Commentary For 1/27/2021

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

What Happened: After a failure to resolve higher, ahead of the Federal Reserve’s policy decision and earning reports by mega-cap stocks, U.S. index futures sold heavy overnight.

What Does It Mean: During Tuesday’s regular trade in the S&P 500, market participants were unable to maintain prices above the $3,852.50 ledge, increasing confidence among responsive sellers.

Graphic 1: Internally, it appears that the market is running out of steam.

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

Given that the market failed to drum up initiative buying after an upside break of the $3,852.50 ledge, in addition to profile structures denoting the presence of excess (which forms after an auction has traveled too far in a particular direction and portends sustained reversal) participants can expect increased confidence among responsive sellers.

Therefore, attention moves to the $3,824.00 – $3,763.75 balance-area.

Balance-areas denote range-bound trade. The longer participants spend time transacting within a narrow range of prices, the more valuable those prices become. Should the market initiate out of balance and return, participants left out in the move will respond as the area offers favorable entry.

Re-entry into the balance-area may portend further downside participation, as low as the $3,763.75 boundary. Participants should keep in mind that the area is valuable and will be the site of responsive buying. The near-term bullish narrative remains intact, as long as participants maintain prices above the $3,763.75 boundary. Trade beneath $3,763.75 would be the most negative outcome and may portend further downside discovery, as low as the $3,727.75 high-volume node (HVNode), a favorable area to transact in the past.

The go/no-go for upside is the $3,824.00 balance-area boundary. The go/no-go for downside is $3,763.75 balance-area boundary.

Above $3,824.00 puts in play the $3,852.50 ledge. Below $3,763.75, participants ought to look to the $3,727.75 HVNode.

Levels Of Interest: $3,852.50 ledge, $3,824.00 balance-area high, $3,763.75 balance-area low, $3,727.75 HVNode.

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Market Commentary For 1/22/2021

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

What Happened: Alongside news of disappointing economic data and new pandemic restrictions, U.S. index futures auctioned back into prior balance.

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). After establishing acceptance (i.e., high-volume area, or HVNode) near the $3,850.00 price extension, an upside target, U.S. index futures auctioned back into range, repairing poor structures left in the wake of prior discovery.

In the simplest way, high-volume areas can be thought of as building blocks. 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. 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 value for favorable entry or exit.

What To Expect: Friday’s regular session (9:30 AM – 4:00 PM ET) will likely open outside of the prior day’s balance and range. The S&P 500, in particular, may open below the $3,824.25 BAH. Doing so, while not soliciting a response from responsive buyers, would negate the earlier rally, and put in play the $3,763.75 balance-area low (BAL).

Few dynamics to note: (1) poor structure in prior sessions, as evidenced by the low-volume areas (LVNodes) in the graphic above, is being repaired, (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, (4) trading back into to the consolidation, thereby invalidating the break-out, would portend a move to the other end of balance, or the $3,763.75 BAL, (5) big picture uptrend remains intact.

Moreover, in light of the above dynamics, the normal course of action is responsive trade. However, any break that finds increased involvement (i.e., supportive flows and delta) below $3,824.25 BAH, would favor continuation as low as the $3,763.75 BAL.

In the best case, if responsive buying was to defend the BAH, then participants ought to target the $3,850.00 high-volume concentration.

Levels Of Interest: $3,824.25 BAH, $3,850.00 HVNode, $3,763.75 BAL.

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Market Commentary For 1/20/2021

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

What Happened: Ahead of President elect-Joe Biden’s inauguration, U.S. index futures auctioned higher overnight.

What Does It Mean: After prices were advertised below balance in the week prior, responsive buyers in the S&P 500 began a rally that found acceptance back inside a larger balance-area, near the $3,800 high-open interest strike.

Given the failed breakdown, odds favor a return to the high-end of balance, the $3,824.25 balance-area high (BAH).

Noting: In most cases, a break-out from balance is usually the start of a short-term auction. Therefore, placing trades in the direction of the break is the normal course of action. Trading back into the consolidation, thereby invalidating the break-out, would portend a move to the other end of balance.

What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM ET) will open inside of a larger balance-area.

Participants can expect higher volatility. As a result, focus should be directed to price levels that, if broken, would denote a change in tone, as well as the following dynamics:

  1. All broad-market indices are in an uptrend, evidenced by higher prices and value. The recent pause is healthy; consolidation after trend allows prices to converge with value, forming high-volume areas. The prices in this area are valuable and offer favorable entry and exit.
  2. The minimal excess rally high at $3,824.25 remains intact. Excess forms after an auction has traveled too far in a particular direction, and portends a sustained reversal. The absence of excess, in the case of a high, suggests not enough conviction; in such case participants will (1) liquidate (i.e., back off the high) and strengthen the market, before (2) following through.
  3. The week ending January 8 established a v-pattern recovery, a price sequence that ought to be followed by further price discovery, as high as the 100% price projection, which happens to be near the multi-month upside breakout target at $4,000.
  4. Increased capital was not committed into yesterday’s highs, evidenced by a divergent delta (i.e., the difference between buying and selling pressure), as can be viewed by the order flow graphic 1.
  5. A proxy for buying derived from short sales (i.e., liquidity provision on the market making side) declined, as can be viewed by graphic 2.
Graphic 1: Divergent delta in the SPDR S&P 500 ETF Trust (NYSE: SPY), the largest ETF that tracks the S&P 500
Graphic 2: DIX by Squeeze Metrics suggests divergence between price and buying

Moreover, in light of the above dynamics, any break that finds increased involvement (i.e., supportive flows and delta) above $3,807.25 or below $3,793.75, in the S&P 500, would favor continuation.

Levels Of Interest: $3,824.25 BAH, as well as the $3,807.25 and $3,793.75 high-volume nodes (HVNode).

Bonus: Despite all broad-market indices being in an uptrend, evidenced by higher prices and value, cracks are forming under the surface.

Simply put, the risk and reward dynamics, at these price levels, are poor.

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Market Commentary For 1/19/2021

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

What Happened: U.S. index futures auctioned back into prior balance.

What Does It Mean: Last week, U.S. index futures broke balance and auctioned lower. After aggressive buyers responded to prices below value, pressure disappeared, and the S&P 500 further confirmed the balance-break.

Over the extended weekend, however, market participants negated the end-of-week selling activity by auctioning back into balance.

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

In the best case, given that the open will be inside of a larger balance area ($3,824.25-$3,763.75), participants can expect continued balance or initiative buying to take out the $3,824.25 balance-area high (BAH). The go/no-go level for further upside is the $3,796.50 overnight high (ONH). Trading through this high would mean that participants overcame responsive selling at the $3,794.25 high-volume area (HVNode).

In the worst case, if the S&P 500 were to roll past its $3,763.75 balance-area low (BAL), expectations thereafter include a test of the low-volume node (LVNode) near $3,732.75. A break of the LVNode would portend a response near the $3,703.25 balance-break projection.

Levels Of Interest: $3,763.75 BAL, $3,796.50 ONH, $3,824.25 BAH.