'The Third Wave': Stock Market Update For The Week Ahead

The Past Week, In A Nutshell

What Happened: In light of hopes for a sustained economic rebound, U.S. broad market indices pushed to new all-time highs.

Remember This: “[T]he third wave is now hitting the economy harder than we thought and that the damage is likely to keep adding up in coming months, until we get vaccines widely deployed,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

“The two key factors in how bad it will get are whether infection growth crests and whether the federal government steps in with another round of stimulus.”

Pictured: Profile overlays on a 30-minute candlestick chart of the Micro E-mini S&P 500 Futures

Technical

During much of the week, participants lacked the conviction to break through to new highs.

However, conditions markedly improved after Thursday’s long liquidation on Pfizer Inc PFE news flushed out weak-handed participants, and responsive buyers surfaced. The quick recovery of the balance-area high suggested the news was immaterial.

During Friday's regular trading, initiative buyers extended range — through the $3,682.00 balance-area high — separating and accepting value above the week-long balance-area.

Therefore, given the acceptance of higher prices, participants must monitor whether S&P 500 spends time trading above the $3,682.00 balance boundary. An initiative drive below that figure would portend a potential response at the $3,667.75 high-volume node. Auctioning further below that value would denote a clear change in conviction. The line in the sand is the $3,640 balance-area boundary. Auctioning below that figure puts the rally on hold.

All in all, though sentiment and positioning imply limited potential for upside, the S&P 500 remains in an uptrend after confirming a multi-month balance-break.

Fundamental

In a commentary, Nasdaq’s Phil Mackintosh discussed new proposed actions from the SEC.

The U.S. is moving away from an equal, actionable, accessible market. It will become more similar to Europe, where segmentation and latency are so prevalent that, even though public data is available, each investor’s view of what they can access is different, making it hard to agree on what quotes and trades should be used to benchmark their executions.

Simply put, Mackintosh suggests proposals like NMS II, which is intended to modernize market data infrastructure, will likely lead to more market fragmentation, segmentation, and quote deterioration.

Key Events

• Monday: Consumer Credit Change.
• Wednesday: MBA Mortgage Applications, Wholesale Inventories, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change.
• Thursday: Core Inflation Rate MoM and YoY, Inflation Rate MoM and YoY, Initial and Continuing Jobless Claims, Jobless Claims 4-Week Average, Monthly Budget Statement.
• Friday: PPI MoM, Michigan Consumer Sentiment Preliminary, Michigan 5-Year Inflation Expectations Preliminary, Michigan Inflation Expectations Preliminary, Fed Quarles Speech.

Recent News

• The U.S. labor market looks to be losing its steam as the COVID-19 pandemic rages.
• Boeing Co BA is reducing its 787 widebody production to five jets per month.
• For now, despite rising economic risks, the Fed will probably not ramp its bond-buying.
• S&P Global Inc SPGI, IHS Markit Ltd INFO merger credit positive.
• Economic recovery will likely be uneven across Latin American countries and sectors.
• The business environment has improved, but will remain unsettled over the next year.
• These are the startups that are still expected to go public before the end of December.
• AstraZeneca PLC’s AZN COVID-19 data has positive social implications.
• The rapid recovery in profits could be signaling a brisk recovery by business activities.
• U.S. retail operating profit will grow in 2021 with growth pronounced in hard hit sectors.
• Britain and the EU make a last-ditch attempt to strike a post-Brexit trade deal this week.
• Trump and McConnell expected to back a pandemic relief bill before the end of the year.
• Travel and tourism demand will take several years to recover to pre-COVID-19 levels.
• Goldman Sachs Group Inc GS could move a key division to new Florida hub.
• Mystery surrounds a $7 billion outflow from one large Vanguard exchange-traded fund.

Key Metrics

• Sentiment: 49.1% Bullish, 28.3% Neutral, 22.7% Bearish as of 12/02/2020.
• Gamma Exposure: (Trending Neutral) 4,429,232,865 as of 12/04/2020.
• Dark Pool Index: (Trending Lower) 40.4% as of 12/04/2020.

Photo by Matt Hardy from Pexels.