Thursday evening we noted elevated option activity at the 7550 strike, seemingly far below where SPX was trading at the time. Friday’s low was 7527, not far from that area of elevated bearish option activity. Now we want to look at the risks moving foward, ranging from continuation higher or a potential deeper low.
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The VIX Continues Testing 20, Refuses to Close Above 20, Importance of 20 Highlighted
The VIX almost reached 24 Friday, fulfilling the series of higher lows and higher highs recently. A gap fill would take us to the 18-strike, then potentially higher, with a break of 17 to the downside reaching 15-16.
-Primary scenario: The VIX reaches the retest of 17, then rebounds.
-Alternative scenario: The VIX gaps up Monday, not stopping until 30. SPX moves toward 7400.
Key Levels: Bullish above 18.50 targeting 20,22. Bearish below 18 targeting 17, 16.
SPX may Still Test 7400-7500 After a Bounce
SPX daily chart draws attention to the distance between the current price and the HMA, raising the odds of a mean reversion bounce of 1-2%. The large GEX at 7500 and the lower Keltner closer to 7400 suggest we face odds of a deeper drop as well.
-Primary scenario: SPX retests 7674-7700, then makes new lows toward 7500, representing the best buying opportunity for a snapback rally into year-end.
-Secondary Scenario: SPX ends up lower by the open, retesting 7400.
Key Levels: Bullish above 7700 targeting 7800+, bearish below 7600 targeting 7500, 7400.
QQQ Daily Reveals Potential for a gap Fill, then 670-680 may Come into Play
Cumulative net option flow shows QQQ 713 to have received a lot of attention Friday. This would fill the gap created by Friday’s gap down while also retesting the 9 SMA.
-Primary scenario: QQQ fills the gap to 713, then heads toward 680.
-Secondary scenario: QQQ starts out the day lower near 680, then rebounds toward 713.
Key Levels: Bullish above 700 targeting 715-720. Bearish below 690 targeting 680.
QQQ 50-EMA Gives Technical confluence to the GEX picture
Zooming out further, QQQ weekly shows prior pullbacks culminating around the 50 EMA. We haven’t yet reached the 50 EMA currently, but when we do, we’ll be on watch for other fossils within the contretion.
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