Tag: Spike

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Commentary

‘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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Commentary

Market Commentary For 11/19/2020

What Happened: Alongside concerns over another round of shutdowns due to rising COVID-19 coronavirus infection numbers, U.S. index futures maintained lower prices overnight, suggesting acceptance of Wednesday’s spike liquidation.

What Does It Mean: As of now, after an earlier test, the S&P 500 index future is trading above a micro-composite high-volume node at $3,557, the fairest price to do business during last week’s trade. This comes after participants struggled to maintain higher prices for the three sessions prior, evidenced by the divergent delta (i.e., non-presence of committed buying) and low-excess at the edges of balance.

This week’s mechanical trade and minimal-excess extremes, therefore, suggests Wednesday’s end-of-day spike was the result of weak-handed, short-term buyers liquidating in panic. This statement is supported by the fact that the selling did not attract increased participation (i.e., price diverged from value).

Further, participants come into Thursday’s session knowing two key points: (1) higher prices were dominated by short-term, weak-handed participants and (2) Wednesday’s end-of-day spike liquidation did not attract increased participation, suggesting much of the selling was done in panic.

As a result, after breaking balance and testing the high-volume area at $3,557 overnight, the S&P 500 offers participants a clear framework for approaching today’s trade. Therefore, if participants manage to spend time and build value in or below the prior day’s selling activity, then initiative sellers remain in control and the liquidation could be the beginning of a new trend to the downside. Otherwise, odds favor a response as the market has now advertised prices below balance, at last-week’s fairest price, offering buyers favorable entry.

The latter scenario would result in a failed break and rotation back into the upper-balance area. The former would suggest range expansion to the lower end of last week’s balance, $3,506.25.

Levels Of Interest: Micro-composite HVN at $3,557, the $3,506.25 excess low, as well as the $3,585 balance-area low.

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Commentary

Market Commentary For 11/17/2020

What Happened: Following an initiative drive on coronavirus vaccine optimism, which confirmed last week’s balance break, U.S. index futures pared gains. The resulting overnight action saw prices fluctuate within Monday’s day-session extremes, suggesting balance and acceptance of higher-value after a big move up.

What Does It Mean: As of now, the S&P 500 index future managed to negate Monday’s end-of-day movement up and away from value, pointing to a desire for balance above the low-volume excess created by the weekend news event.

Further, the aforementioned low-volume area should hold against future auction rotations. However, probing into the region may portend swift movement as low as the $3,580 balance-area high, which ought to offer responsive buyers favorable entry.

Levels Of Interest: 100% projection of the balance-area at $3,650, the low-volume area at $3,600, and $3,580 balance-area high.

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Commentary

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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Commentary

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.

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Commentary

Market Commentary For 11/11/2020

What Happened: Following Tuesday’s resolve of excessive coronavirus vaccine optimism, responsive buyers established an excess low at the $3,500 high-volume ledge, and auctioned the S&P 500 up into Monday’s end-of-day spike liquidation.

What Does It Mean: Participants were able to repair some of the poor low-volume structures left in the wake of Monday’s coronavirus vaccine news. As mentioned earlier, responsive buyers resurfaced at a notable high-volume ledge, the site of recent value.

Further, the possibility of a failed higher time-frame breakout is intact. As a result, participants should look to whether Monday’s late-day spike is negated via trade above $3,580 in the S&P 500. Failure to negate the spike suggests initiative sellers remain in control.

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

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Commentary

Market Commentary For 11/10/2020

What Happened: Following an initiative upside drive on coronavirus vaccine optimism, U.S. index futures pared gains, weighed down by the innovation-driven, technology sector. The resulting overnight price action brought prices back into a multi-month balance area, putting into question Monday’s breakout.

What Does It Mean: As of now, after Monday’s end-of-day spike liquidation moved prices away from value (i.e., the level at which the most amount of activity occurred), the S&P 500 index future is trading near the October rally high, above a high-volume concentration which denotes the most recent perception of value.

Further, the aforementioned high-volume concentration should allow responsive buyers more favorable prices to emerge from. If the market were to auction beneath the high-volume concentration, through the low-volume below, then near-term directional conviction has changed, favoring more rotational trade.

Levels Of Interest: High-volume areas near $3,500,  $3,450, and $3,400. Major upside references include yesterday’s value area above $3,500, as well as the extension near $3,700 and projection at $3,800.