the VIX Reaches Make or Break Zone Approaching VIX Expiration
This Wednesday morning is when monthly VIX options expire, just as we see the VIX crushed two days in a row following Friday’s spike to 22+. The VIX needs to lose the 17 area to increase the odds of a drop back to the 15s and an accompanying market rally. Indices haven’t made a decision yet, though. SPX and QQQ still sit in varying degrees of negative GEX environments, and both are below important resistance on the daily chart. The burden is on the bulls to turn the page to the upside.
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SPX still “Stuck” Below 7741 HMA, 7750 GEX Resistance
Our primary scenario was fairly close to what happened, at least directionally: SPX reached 7668 (we said 7650), then rebounded, reaching 7748, two points shy of the initial target. SPX has failed to overtake the 15 EMA 5 days in a row, though today saw an intraday move to retest the 9 SMA and HMA just above it, which was nice to see. The large amount of GEX at 7750 may be a big resistance area, though if SPX can show a daily close above 7750, we could hit 7800 quite fast. The Keltner channels are wide, though GEX indicates the most likely range (for now) between 7600-7800 for the next two weeks. Option flow was positive today, but SPX still shows negative GEX, almost at zero though. The largest net GEX cluster is at 7700, with 7650 in the number two spot.
-Primary scenario: SPX can still drop to 7650, with risk to 7600, where a year-end move higher may begin.
-Alternative scenario: SPX stages a surprising rebound all the way to 7800, then retests 7700 before the next decision.
Key Levels: Bullish above 7700 targeting 7750, 7800. Bearish below 7700 targeting 7650, 7600.
QQQ Negative GEX Doubles from -600M to -1.2B, 690-700 may be Tagged
QQQ’s steeply declining HMA and the largest GEX cluster sitting at the 700 strike causes me to believe the odds favor a rejection of rebound attempts until we see 690-700. Tactically, since we have to be flexible in trading in order to survive, we view 730 as an important pivot, above which we can see 740-760 achieved. The close below 720 seems supportive of the move lower, though I see someone fell asleep on the buy button in the futures market tonight, so we’ll need to see where we open in the morning.
-Primary scenario: QQQ continues rejecting moves higher and drops toward the largest net GEX at 700.
-Secondary Scenario: QQQ continues rally attempts, failing to breakout either to the upside or lower than 715-720, allowing the HMA to flatten in coming days before a steady rebound begins.
Key Levels: Bullish above 730 targeting 740-760. Bearish below 720 targeting 700, then 690.
SMH Made a new low Today COmpared to Friday’s low, 520-530 may end up Being Tagged
For semiconductors to not participate in any Q4 rally would be quite the anomaly, especially given the Wall Street window dressing incentive some fund managers will have as we approach year-end. This brings me to the fact that SMH printed a lower low and lower high than its worst recent day two days ago, which is not a good look. The chart and GEX picture does look like a pivot may be close, with 520-530 potentially being the downside targets. SMH closing above 552 will begin to look like a larger shift to the upside may be underway, and I see SMH at almost 560 after hours right now.
-Primary scenario: SMH drops to 530, then potentially consolidates sideways with an upward bias.
-Alternative scenario: SMH reaches 560, then rallies to 580 in coming days.
Key Levels: Bullish above 560, which may see a shift in GEX toward positive strikes. Bearish below 550 targeting 530.
The VIX is Oversold by Some Metrics, GEX Indicates 17 may see Reversal
The VIX saw net GEX flip negative today, just ahead of the monthly VIX options expiring in the morning. The VIX looks more bullish for stocks if we can see sub-17 levels, and lower timeframes are already oversold to levels that usually accompany VIX reversals. This brings us to some bullish and bearish possibilities:
-Primary scenario: The VIX retests 16.5-17, then rebounds toward 20, making a lower high as the market bottoms at levels we already discussed.
-Alternative scenario: The VIX tests 17, then rebounds toward 20, then keeps going, reaching 30-35 (bring your hardhats).
Key Levels: Bullish (for volatility) above 18 targeting 19-20. Bearish below 16.5 targeting 15 or lower.
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