Dramatic IWM Shift may be a Warning for Bears
Thursday’s alternative (secondary) scenarios that we laid out in the newsletter largely played out on OpEx Friday, with indices heading lower and the VIX spiking to 20+. The further extension to the downside created several contrarian extreme signals and we also saw positive GEX shifts that we feel shifts the odds in strong favor of a bounce higher, even if the market continues lower after such a bounce. We also saw SMH reach levels below 0.00 on the daily %b indicator, a reading that has very consistently accompanied SMH lows or pivots to the upside.
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The VIX Reaches Positive GEX Reading Rarely Seen, other Topping Indicators Trigger
Friday accomplished several things for the VIX: We saw the 20-level breached, with a post-cash session close of 19.98, we saw a VIX GEX reading at a positive extreme typically associated with VIX topping processes, and we saw the VIX reach the upper daily Keltner channel. The GEX reading doesn’t guarantee a top for the VIX on Friday, but odds favor a volatility pullback, which we’re seeing in futures as I type.
-Primary scenario: The VIX drops toward 17 as the market rallies toward SPX 7700, at which point we’ll reassess odds for continuation of the drop or the end of the pullback.
-Alternative scenario: The VIX heads toward 25-30 as the drop in indices accelerates.
Key Levels: Bullish above VIX 20 targeting 25, 30. Bearish below 17 targeting 15.5, then 15.
SPX may see Incremental more Downside, risk is Tilted Toward Upside
SPX reached 7631 Friday before closing just below 7660, so the odds seem to favor heading toward 7700, since the close was above 7650. The 1-hour Keltner channels appear to have been accurate pivot points in the past, and Friday saw a tag of the lower channel. The channel is declining though, so we’ll be watching any continued bounce into Monday for signs of rejection. GEX for next week suggests risk exists down to a proper tag of 7600, but the range may continue to the upside all the way to 7800, which means risk appears tilted toward the upside. Friday also saw positive option flow at 7700 and 7725, despite negative flow at 7750
-Primary scenario: SPX tests 7700 and maybe even 7725 before a potential retracement lower.
-Alternative scenario: SPX gaps down, retesting either 7630 or 7600, then attempts to rebound toward 7700.
Key Levels: Bullish above 7650 targeting 7700, 7725. Bearish below 7650 targeting 7600.
QQQ Reaches rare Negative GEX Reading, Suggests EIther a Bottom or 2+ day Bounce
QQQ historical GEX shows similar readings to Friday’s -2.4B to be quite rare, only happening at major lows in recent years. Sometimes we see QQQ price lows not accompanied by such low GEX readings, but we don’t see such low GEX readings attached to anything but meaningful QQQ lows.
-Primary scenario: QQQ rallies to at least 720 to retest important GEX levels.
-Alternative scenario: QQQ drops more toward QQQ 700 before rebounding.
Key Levels: Bullish above 712 targeting 720-730. Bearish below 710 targeting 700.
IWM CLosed Friday with Extreme Negative GEX, but After Hours Shifted to Positive GEX
IWM posted a stark shift in GEX late Friday, with GEX turning positive after the OpEx cash session close. Could this shift be tied to OpEx? sure, it’s possible. But we see positive GEX on IWM skyrocket at the 290 strike, and we saw mostly positive option flow. Could this shift be the earlier indicator for the market that we’re heading higher? The next few days should prove the outcome.
-Primary scenario: IWM begins a move toward at least 280, maye 290.
-Alternative scenario: IWM continues toward 265 before rebounding.
Key Levels: Bullish above 280 targeting 290. Bearish below 280 targeting 270, 265.
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