Friday’s rally was strong enough to negate weakness from Thursday and also closed at a new all time high. Overnight activity is balancing around the volume point of control which indicates acceptance for now. The overnight range is relatively muted and balanced. There is negative divergence this morning between the NASDAQ 100 and S&P 500 futures. The S&P’s are currently flat and the Nasdaq 100’s are off 18. 

The divergence is minor but should be a carry forward in your narrative. It increases the odds of further balancing activity in the day session today when the indexes are fighting each other. Assume balance within the value area and no change in tone unless there is any acceptance below the single prints (about 4160 on the S&P 500 and 13850 on the NASDAQ 100). 

Structure (elongated and stretched) was poor on Friday. Carry that forward. The prevailing market narrative is typically stronger than poor structure unless that structure really starts to stack with multiple concurrent days.

Dropping down to a 2-hour perspective, the indexes have weakened further on this latest run out of the volatility ping-pong that was last week. The activity looks a bit like a “4” wave in Elliott parlance on the daily chart. That would allow for a final poke higher on one of the multitude of significant events this week; Biden tax proposals, Fed meeting and announcements, and monsters of tech reporting earnings. Keep these events and announcements on your radar so you are not lost in the weeds and caught off guard. As I have been harping, disaster stops are more important than ever.

We will be opening in balance, within the upper half of Friday’s range on both indices. Overnight inventory is slightly long on the S&P 500 and slightly short on the NASDAQ 100, though the overnight range is short and squatty in both indexes. All in all, there is little to guide us on the open, so it pays to let the index hem and haw a bit before taking a position. 

My overall bias is neutral to negative down to the 21 EMA on the daily chart where I want to see how the market reacts. Both the NDX cash indexes are trading below the 15-minute 21 EMAs, also a negative short-term.

With everything mostly in balance at the open and little to guide us, look to internals for your first cues. If the S&P 500 A/D line is between +200 and -200, and ticks are between +400 and -400, I look for a range day and responsive trading from both ends. Tension between the NASDAQ 100 and S&P 500 also tends to lead to range days. Range days also have a tendency to follow strong trend days such as Friday. If the A/D and ticks are tending to exceed those levels in either direction, a trend day is likely in the applicable direction. Don’t forget to run an early heat map to see what influence the big caps are having on returns.

Then, with my key levels in place, I evaluate the market as it tests each level, e.g. the overnight high and low and yesterday’s high and low. Are we dropping down below the open or coming back up through it. Watch your internals as we tap these levels. What are the ticks doing? What is volume doing? How is momentum? Where is the algo trigger? Did we make it through the level? Monitor for continuation or accept the failure and reversal and take your direction accordingly.

Finally, run a 15-minute chart on the cash indexes. Bring in the 21 EMA. On range days, it cuts through the middle of the price action. But on trend days – whether up or down – the 21 EMA is where you look to put on positions. Running a VWAP with a couple of standard deviation bands is also helpful on range days. Fade the bands and cover at the VWAP line.

 We are looking for 63 points up or down from Friday’s close for the Weekly Expected Move on the S&P 500. The number is 312 points on the NASDAQ 100.

Good luck today! I don’t trade Mondays, typically.

A.F. Thornton