All eyes on AI as SPX Approaches a big Decision
Thursday was a mixed picture for our primary scenarios, but the general direction was correct: Down. SPX dipped just below our bearish 7650 target as we lost 7700, and QQQ almost tagged our primary 700 target. The VIX respected what we viewed as most likely with a rebound just above 20, then fading back to 19. The question now is whether the next likely bounce is the beginning of a huge upside move, or just another pit stop on the way to Panicsville?
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SPX Keltners Suggest Increased Volatility in the Future, but up or Down?
SPX has basically been in slightly over a 4% range since July, which seems quite narrow considering the width of the Keltner channels. The distance involved in a breakout toward 7900-8000 or a breakdown toward 7400 has my attention, yet that attention hasn’t generated any firm conclusions. Considering GEX for Friday and next week, which I’ve selected in the image below, we see the top 4 GEX clusters at 7650, 7700, 7600, and 7750, in that order. We see significant net GEX clusters at 7800 and all the way down to 7500, and price has been stuck below the HMA for most of the last week, which is not a good look. Until SPX can close above 7750, downside risk looms. We’ll discuss QQQ next, which may be closer to reaching a potential pivot area, likely having implications for SPX as well.
-Primary scenario: SPX potentially retests 7700 overhead, but ends up bottoming at 7600.
-Alternative scenario: SPX gaps up to 7700, holds that level on a daily close, then continues toward 7900.
Key Levels: Bullish above 7700 targeting 7750, 7800. Bearish below 7650 targeting 7600, 7500.
QQQ can Bottom at 690, Upside Likely Limited until the HMA Flattens
QQQ bottomed today just below 702, annoyingly unable to make that last push to test 700, but close enough to our primary scenario from yesterday to call it a “win.” The lower Keltner suggests 690 is possible, and we’ve talked about the GEX at 690 occasionally over the past week as well. 690 looks interesting because it represents the approximate June bottoming area and it’s not far from the July bottom, either. The upper Keltner is pointing almost vertically up and we see lots of option activity between 700-760, with very little activity below 680. At least we can say participants don’t currently have much interest in entertaining a move below 680, whether it’s realistic or not.
-Primary scenario: QQQ tests 690-700, then begins a big rebound into Q4.
-Secondary Scenario: QQQ rallies toward 720, then drops toward 690 next week.
Key Levels: Bullish above 716 targeting 720-730. Bearish below 700 targeting 690.
SMH Either Turns at 520 or the RIsk of an Overshoot to 500 Becomes More Realistic
SMH gave us an identifiable bounce zone a few days ago with the close at the 0.0 line of the percentage bollinger (20,2) indicator, and we’re back at 0.0 again today, also close to tagging the lower Keltner channel. SMH is ripe for a rebound, but GEX suggests risk to 500 unless we retake 525, so we’re inclined to wait for a close over 525 on the daily basis. A glaringly large positive set of option flow at 590 caught my attention as well. This potential target aligns with the middle Keltner channel and represents an approximate halfway back destination, if SMH can muster a recovery.
-Primary scenario: SMH retests 535-550, then drops toward 500 before rebounding to 590-600.
-Alternative scenario: SMH closes above 525 and turns the corner to the upside, targeting 590, then eventually 650.
Key Levels: Bullish above 535, targeting 550-600. Bearis below 525 targeting 500.
The VIX Continues Holding ABove key Trendline, More Tests of 20 Suggest Breakthrough
The VIX held all of the attempts to break the trendline to the downside, maintaining the series of higher lows. The additional push past 20 today still lends credit to the potential for a spike to a new high toward 25-30, so we’re keenly watching how action unfolds on Friday.
-Primary scenario: The VIX retests 18, then potentially spikes toward 25 before plunging back toward 13-15 into year end.
-Alternative scenario: The VIX begins a downward march toward 14, then rebounds into year end as markets become even more tricky post-earnings season.
Key Levels: Bullish (for volatility) above 20 targeting 25-30. Bearish below 17 targeting 15 or lower.
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