Indices saw bullish follow through Tuesday, with closes for QQQ and SPX above their respective daily 9- SMAs and HMAs, and a shift into positive GEX for SPX. QQQ and IWM are still narrowly in negative GEX territory, also seeing a meaningful decrease in negative GEX for the day. The VIX also dropped back into negative GEX territory. Out of the woods? Not quite, but the picture does look constructive. At this moment, the VIX looks like it has a setup for a spike, and SPX and QQQ are already looking extended above their HMAs, though both can stretch further for a day or two before mean reversion is likely to take hold. In the case of a pullback, bulls want to see higher lows, and ideally, the HMA holding as support. Let’s look at the GEX picture next.
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Despite Jump into Positive GEX, SPX’s Largest Net GEX Clusters are Mostly Below
The 3 largest net GEX clusters for SPX on a weekly basis are (in order of size) 7650, 7600, then 7800. It’s positive that 7500 has shrunk, and SPX closed above the big GEX pivot at 7700, so perhaps we’ll see 7800 first. With FOMC tomorrow, and GOOGL and MSFT reporting after the bell, anything can happen. We could see a whipsaw and touch both 7600 and 7800, or perhaps overshoot to the upside (accompanied by a rapid shift in GEX), but I don’t have a drop to 7500 as a likely move in my playbook. Technically that would fall in the definition of “anything” though, so let’s just focus on our two views of what is most likely:
-Primary scenario: SPX plays both sides of 7700: Retests 7650, makes an attempt toward 7750-7800. As far as order, I’d rather react to whichever is hit first (what does this FREE newsletter look like- a crystal ball?)
-Alternative scenario: SPX holds a retest of 7700 and then rallies toward 7800, potentially making a new all-time high.
Key Levels: Bullish above 7700 targeting 7750, 7800. Bearish below 7700 targeting 7650, then 7600 (if exceeded to the downside).
QQQ 720 is an Important Pivot, 690 and 700 are Still Live Targets
Two things are true of QQQ (and many other things, two, I mean, too): It looks bullish in one sense as QQQ closed near highs. GEX also improved. But QQQ still shows slight negative GEX, and 690-700 is where most GEX is concentrated for this week specifically. The question is whether QQQ can hold progress to the upside and force GEX to adjust higher, or if this move is destined to fail in the short term, with 690-700 being tagged before taking another look at a sustainable rally. The low from two days ago only reached 701, and I can’t help but notice the lower Keltner channel aligned with 690. QQQ looks a bit less bullish than SPX, in my view. Staying above 720 can lead to a 730 test, and I fully expect that as a strong possibility tomorrow.
-Primary scenario: QQQ retests 700 at some point, with 730 as a potential upside target, either before or after a tag of 700.
-Secondary Scenario: QQQ makes a meaningful bottom at 690 and then sees a whipsaw back up to close at 730-740.
Key Levels: Bullish above 720 targeting 730, 740. Bearish below 720 initially targeting 700, 690.
IWM Suggests 284 may be Tested Wednesday- Then a Pullback?
IWM closed just above 280, our primary scenario from last night’s newsletter. GEX now shows 277 as an important pivot, with 284 as a likely target above. Note that the 50-day EMA is at 283, so participants seem to be essentially betting on a tag and slight overshoot of the 50-EMA.
-Primary scenario: IWM reaches 284, rejects and revisits 275.
-Secondary scenario: IWM breaks down and reaches for 270 immediately, potentially 265.
Key Levels: Bullish above 277 targeting 280, 284. Bearish below 277 targeting 275, 270.
The VIX Appears Close to a Bounce, Current Expectations are for a Lower High
The VIX has been somewhat stubborn these last few days, refusing to break below 17 at all. This is no surprise given the event risk entering FOMC and big tech earnings, and we see a setup on the 60-minute chart for a bounce for the VIX. Net GEX moved into negative territory for the VIX, and the strike-by-strike analysis shows 20 as a big pivot and potentially a ceiling in a lower high scenario. Downside targets are 15-16.
-Primary scenario: The VIX retests 20, then rejects, eventually reaching 16 in coming days.
-Alternative scenario: The VIX spikes above 20 and holds, reaching for 25-30 into the end of the week or sooner.
Key Levels: Bullish above 18 targeting 20. Bearish below 18 targeting 17, 16.
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