A big rally right before CPI? I’ll invoke the famous line from Austin Powers, one of the objectively great comedies of the ‘90s (and there were many), “I also like to live dangerously.” A move that would have made more sense on Friday happened Monday instead, with indices staging big rallies, testing key resistance areas. The VIX closed around 20, an important pivot marking either increasing odds of a VIX retracement back to 15 or a spike further toward VIX 30, if held. The burden of proof is flipping back to the bears, but let’s look at the full picture to assess important pivots to the upside and downside as we approach CPI premarket on Tuesday.
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SPX GEX Shifts Positive, still Negative at Today’s Close and the Downtrend isn’t Broken
Looking at GEX into OpEx, we see most of the GEX between 7400-7700, which you may notice is higher than the range we noted in last night’s newsletter. This positive shift doesn’t escape the risk of a pullback, no matter how many new (old) affairs are discovered amongst Mag Seven CEOs that might cause further gains. In my opinion, testing any level north of 7600 begins to look more positive for SPX, because then the pattern carries potential to shift sideways or up as the downtrend is broken. The current GEX picture suggests any move back toward 7400 is likely a buying opportunity that can target 7700 to the upside.
Despite the positive shift overall, GEX still closed in the negative as of the cash session close, creeping up to positive territory after hours. Most of the positive GEX today was in the 0 DTE contracts.
-Primary Scenario: SPX knocks on the door of 7580-7600 before dropping back to retest 7500.
-Secondary Scenario: SPX starts out lower after a “shocking” CPI number that is 0.1 ahead of expectations but then rallies toward 7700 after Cramer gets bearish.
Key Levels: Bullish above 7600 targeting 7700. Bearish below 7500 targeting 7400.
QQQ Closes Above the HMA, Needs to Recapture 680 to Open the Door to a 700 Retest
Most of the QQQ GEX is between 650 and 700, and importantly, the largest net GEX cluster is at 650. QQQ’s Keltners and moving averages are pointing more steeply to the downside, which is concerning for bulls. Nonetheless, if 680 is captured, 700 may arrive quickly, though GEX currently indicates limited upside from that point, and potential reversal back to retest 650. Closing above 700 would likely see a big shift in GEX toward new highs, but that possibility remains speculative as of now.
-Primary scenario: QQQ retests the 15 EMA, reaching 695, then drops to retest 680.
-Secondary Scenario: CPI sends QQQ to 650, which then begins a rally back toward 680 and above.
Key Levels: Bullish above 680 targeting 700. Bearish below 680 targeting 650, 630.
SMH GEX still Leans Bearish, Most GEX is Between 450-500
SMH net GEX is still negative, with most GEX between 450-500. The chart looks a lot like QQQ, unsurprisingly, and risk exists for a drop back to 450, unless 500 is recaptured by the close.
-Primary scenario: SMH tests 500, then drops toward 475.
-Secondary Scenario: SMH starts the day at 475, then rallying toward 500.
Key Levels: Bullish above 475 targeting 500. Bearish below 475 targeting 450.
Bears are Barely (Bearly?) Hanging on With the VIX, 18 is the Last Line of Defense
The VIX still maintains positive GEX, even after today’s brutal decline, which raises the risk of another attempt higher. The uptrend line closer to 18-19 would potentially make more sense as a line-in-the-sand to ascertain whether or not the VIX move is over or not. Lower timeframes (2 hour, for instance) show the VIX on a buy, reflecting oversold conditions and the VIX crossing over the HMA at the lower Keltner.
-Primary scenario: The VIX rallies to retest 25 before being crushed back below 20, potentially marking a bigger turning point.
-Secondary Scenario: The VIX loses 20 without further upside, leading to the VIX working its way back toward the 15s.
Key Levels: Bullish above 22 targeting 25, 30. Bearish below 20 targeting 18, then 17.
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