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Commentary

Market Commentary For 12/31/2020

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

What Happened: After a range-bound balancing day, U.S. index futures tested lower overnight alongside news that COVID-19 case counts were rising, before turning at a visual level, and trading back into range.

What Does It Mean: Participants further accepted the upside break of $3,691.00 in the S&P 500, a boundary that attracted responsive selling in the week prior.

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

Given three-sessions worth of unchanged value, and the failure to fill the gap beneath a weak low (i.e., a visual level that attracts the business of short-term, technically-driven market participants) at $3,714.50, participants will come into today’s session knowing the following: (1) markets are closed on Friday, (2) the failure to resolve directionally points to the absence of larger, other time frame participants (i.e., institutions that don’t transact at technical levels), (3) the overnight rally high at $3,747.75 remains intact (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), and (4) the period leading up to New Year, after Christmas, is historically bullish.

Noting: Excess forms after an auction has traveled too far in a particular direction and portends a sustained reversal. Absence of excess, in the case of a low, suggests minimal conviction; participants will cover (i.e., back off the low) and weaken the market, before following through.

Putting it all together, the S&P 500 is trading within a larger bracket; 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.

Levels Of Interest: Overnight high at $3,747.75, Tuesday’s pullback low at $3,714.50, the upside extension at $3,756.75 and the $3,691.00 break-point.

Bonus: Below, you will find two visuals. The first suggests the big picture S&P 500 breakout remains intact. The second suggests conviction is thinning, given light intra-day participation (i.e., the activity that occurred before the end-of-day positioning).

Pictured: Daily candlestick chart of the cash S&P 500 Index on the left. Intraday order flow in the SPDR S&P 500 ETF Trust (NYSE: SPY) on the right.
Categories
Commentary

Market Commentary For 12/30/2020

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

What Happened: After a liquidation in the backdrop of a longer-term uptrend, U.S. index futures auctioned off their lows and traded back into range.

What Does It Mean: Participants further accepted the upside break of $3,691.00 in the S&P 500, a boundary that attracted responsive selling in the week prior.

What To Expect: Wednesday’s regular session (9:30 AM – 4:00 PM ET) will open on a gap within prior-balance and -range. Given unchanged value and a failure to fill the gap beneath Monday morning’s pullback low at $3,716.00, participants will come into today’s session knowing yesterday’s downside reversal left minimal excess.

Noting: Excess forms after an auction has traveled too far in a particular direction and portends a sustained reversal. Absence of excess, in the case of a low, suggests minimal conviction; participants will cover (i.e., back off the low) and weaken the market, before following through.

Putting it all together, the S&P 500 is trading within a larger bracket; 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.

Levels Of Interest: Overnight high at $3,747.75, Tuesday’s pullback low at $3,714.50, the upside extension at $3,756.75 and the $3,691.00 break-point.

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Commentary

Market Commentary For 12/29/2020

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

What Happened: Alongside stretched sentiment and bets that fiscal aid will improve the vaccine-led recovery, U.S. index futures, again, auctioned to record highs.

What Does It Mean: During Monday’s session, participants accepted the break of $3,691.00 in the S&P 500, a boundary that attracted responsive selling in the week prior. Since then, participants continued the upside discovery process, establishing a new overnight all-time high at $3,747.75.

What To Expect: Tuesday’s regular session (9:30 AM – 4:00 PM ET) will likely open on another gap. Given that this is the second gap (the gap between Friday and Monday’s session was the start of the short-term auction), in the context of a new trend , participants know that upside conviction and strength has been reaffirmed.

Noting: Monday’s break-out from balance confirmed the start of a new short-term auction. The acceleration of that trend overnight, via the second gap, further emboldens buyers.

Now, given what appears to be an absence of other-time frame participants (e.g., institutions, larger-time frame players), participants will come into today’s session knowing (1) the structure at Monday’s regular session high was poor, (2) overnight activity established a new all-time high (i.e., historically, there is a low probability that overnight all-time highs end the upside discovery process), and (3) the period leading up to New Year, after Christmas, is historically bullish.

Putting it all together, the path or least resistance is up. Important references for today’s trade include the low-volume area between $3,737.00 and $3,732.25 which ought to be supportive, the untested point of control (i.e., VPOC — the most valuable price from the day prior) at $3,727.25, and the overnight all-time rally high at $3,747.75.

Auctioning beneath yesterday’s morning pullback low at $3,716.00 would jeopardize the breakout. At that point, participants would look for a response at the $3,691.00 break-point. Auctioning below $3,691.00 is a no-go and would portend further rotation.

Levels Of Interest: $3,737.00 and $3,732.25 LVNodes, VPOC at $3,727.25, overnight high at $3,747.75, pullback low at $3,716.00, and the $3,691.00 break-point.

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Commentary

Market Commentary For 12/28/2020

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

What Happened: As President Donald Trump moved to sign into law a $2.3 trillion pandemic aid bill, U.S. index futures auctioned to record highs.

What Does It Mean: Friday’s session found responsive selling surface near the $3,691.00 S&P 500 profile level. Since then, participants initiated past the level with conviction, and took out the $3,724.25 prior all-time high, before auctioning back into range and finding acceptance near $3,720.00.

What To Expect: The low-volume area (marked as the LVNode at $3,711.50) is representative of upside conviction after a break of the $3,691.00 boundary. This same low-volume area should offer support on a future test. Acceptance within the low-volume area, beneath $3,711.50, may portend a test of the $3,691.00 break point. Auctioning beneath the breakpoint would be the most negative outcome, negating the transition from balance to trend.

Noting: In most cases, a break-out (i.e., gap or auction failure) 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.

Adding, the days leading up to the New Year, after Christmas, are historically bullish, dubbed the Santa Claus Rally. Here’s an excerpt from a Yahoo Finance article on the topic:

“Well, there isn’t a single seven-day combo out of the full year that is more likely to be higher than the 77.9% of the time higher we’ve seen previously during the Santa Claus Rally,” LPL Financial’s analysts observed after analyzing data going back to 1950. “Additionally, these seven days are up an average of 1.33%, which is the second-best seven-day combo of the year.“

Levels Of Interest: $3,711.50 LVNode and $3,726.50 all-time overnight high. Today’s go/no-go level in the S&P 500 is $3,691.00; remaining above is bullish.