SPX Headed for Higher Targets into Year-end, Short-Term Risk Tilted Lower
Friday’s gap up for SPX threw bears back onto the endangered species list, but shorter-term divergences point toward imminent downside risk, both in terms of positive VIX divergences and negative SPX divergences. Tonight we look more closely at those signals.
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The VIX is still Poised for Reversal near 15, Positive GEX may Lead to VIX 20
For the first time in several sessions, the VIX is showing a net positive GEX reading of $155M, even as the VIX plunges toward 15. Volume at the 20-strike was 254,000 contracts as the VIX also nears the lower 1-hour Keltner channel at 14.89, though option flow for the day was negative. With the lower Keltner channel pointing higher, we can certainly see the VIX work its way incrementally lower toward 15, but recent underlined examples typically resolved higher within a few 1-hour bars, so we’re on watch for early signs of a VIX reversal.
-Primary scenario: The VIX drops to retest 15, potentially slighly lower, then rebounds toward 17. Holding above 17 may see a quick move to 20.
-Alternate pathway: The VIX diverges to the negative below 15 and holds, forcing indicators to turn lower. GEX also moves lower, highlighting 13 as a target.
Key Levels: Bullish (for the VIX) above 15 targeting 17, 20. Bearish below 15 targeting 13-14.
Weekly SPX Reveals Growing Positive GEX Toward 8100, 7761 Key Pivot
Let’s start with a look at total GEX minus Friday’s 0 DTE expiries: SPX looks bullish, with most GEX between 7800-8200. The upper weekly Keltner is climbing in bullish fashion toward 8200. Yet technically, SPX closed below the 7760.82 weekly HMA, and barely held the weekly 9 SMA at 7713. These parameters give us a chop zone between 7713-7761. Any break beyond those points may indicate a trending move away from the trigger, whether downward from 7713 or upward from 7761.
-Primary Scenario: Given observations on the VIX, and the close near downside triggers, SPX drops toward the 15 EMA at 7603.83 and potentially lower.
-Alternate Scenario: SPX opens above 7761, reaches 7800+, then consolidates.
Key Levels: Bullish above 7761 to 7800, 7850. Bearish below 7713 toward 7700, then 7600.
GOF Market Velocity Tool Flashes Signal Consistent with Reversal
Our proprietary Market Velocity tool is 3 for 3 on recent Dealer Absorption signals leading to substantial drops, though Friday’s readings have yet to play out. Will absorption prove to be similar, with SPX dropping toward 7675 or lower, or will we see sideways consolidation followed by a move higher? I think we’ll find out early this week.
QQQ Shows High odds of Reaching 760, Overcoming 752 is key
QQQ for this OpEx cycle shows 760 as an odds-favorite target, but very little beyond that point, as of now. We also see the 1-hour Keltner channels fairly neutral, and price is below the 751.78 HMA. It’s possible we see an overshoot of the HMA and the Keltners to tag 760 immediately, but Friday saw attempts at 750 rejected, and a gap fill to 720 or a retest of 740 seem likely at some point.
-Primary Scenario: QQQ tests 755, then fails toward 740-730.
-Secondary Scenario: QQQ drops to 740 or lower, then rebounds toward new highs.
Key Levels: Bullish above 750 targeting 755, 760. Bearish below 750 targeting 740, 730.
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