Dropping Into FOMC: Approaching A Bottom?
SPX has been holding above 7400 as though the level is a matter of life and death, and perhaps it is, in some ways. Today’s close was just below the important daily HMA by one point, which looks bearish, though not decisively so. The large net GEX at 7300 may end up being a destination for SPX, which may imply QQQ dropping to almost 650, if the trend of QQQ underperforming continues in the short run. The VIX has a setup to potentially move to the low to mid-20s, though the picture looks uncertain above the 25 strike for the VIX..So maybe we can look for a market bottom in the near future (Cramer’s “sell A.I!” comments aside).
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Futures Are Still ABove SPX 7400- But It’s Not Looking Pretty
SPX made a nice move to the upside from today’s gap down, but the failure at the 7450 area led to a close just below the HMA, which is also declining. Holding above 7400 is a positive, but net GEX at 7350 and 7300 appear to be likely targets when selecting for this week’s GEX. Net option flow is also negative when we eliminate days beyond this week (and excluding 0 DTE data from Tuesday, which our members can do).
As a contrarian, I’m always looking for the silver lining in the opposite direction, and it appears that a move toward 7300 (or 7200 if we really want to scare the bulls) could be a good buying opportunity for the next leg higher.
SPX Largest Net GEX Expiring July 29 Is At 7300
We use our 3D model to get a more granular view of GEX on specific expirations, and this week shows 7300 to be the largest net GEX cluster expiring on FOMC day. With FOMC, the entire GEX picture can certainly shift, but based on what we know now, 7300 has decent odds of being reached, with 7350 and 7600 marking the largest negative and positive clusters expiring Friday. Can we see an FOMC low (or maybe the morning after), then a rally into the end of the week?
Key levels: Bullish above 7457 targeting 7500, 7550. Bearish below 7400 targeting 7350, then 7300.
QQQ May Tag 650-660 (Thanks Chip Stocks)
Semiconductors are on track to erase more than half of the rally since April, serving as a good example of how quickly parabolic rallies can end up being nothing more than one side of an artists’ rendition of the Eiffel Tower (so safe observation floor on this one, though). Unfortunately, SMH’s decline is weighing heavy on QQQ, with Mag 7 unable to offset the damage so far. We have a couple of positive points to watch though: Number one, cumulative net option flow was positive and pronounced at more than one strike above 700. Number two, net GEX seems to indicate 650-660 may be a consolidation and/or reversal zone, also aligning with the lower daily Keltner at 653.71.
Key Levels: Bullish above 680 targeting 690, 700. Bearish below 680 targeting 650, 660, where we might become buyers.
IWM Trolling Long-Term Small Cap Bears
IWM is getting the last laugh lately, closing higher than Monday’s close and staying above the big 290 GEX area. We also see positive option flow at the 295 strike, a possible target to watch for this week. It’s entirely possible that QQQ and SPX making lower lows could drag IWM down to 285, or we could even see IWM lead the way lower, but so far, signs point to a relatively muted overall drop compared to the battered and bruised SPX and QQQ. 280 aligns with the lower daily Keltner channel, so I don’t expect a drop to go too far beyond that point, at this stage.
Key Levels: Bullish above 290, targeting 295, 300. Bearish below 290 with limited downside toward 280.
The VIX’s Ascending Pattern May Lead To Heartbreak For The Short Vol Crowd
The higher lows we’re seeing on the VIX are somewhat reminiscent of the pattern we saw from late December through March, culminating in a spike to VIX 35. We’re still looking at a much shorter timeframe so far, so it’s not a perfect comparison, and the VIX breaking below 18 could lead to a drop toward 15-16. As long as 18 holds, the VIX appears to be headed for somewhere between 22-25. The 20 strike needs to be successfully captured first, so volatility bulls still have some work to do. Will FOMC allow us to reach one extreme or the other? It’s not a guarantee that we will see the VIX move much at all, but the risk of a larger move is one to be aware of as we approach Wednesday’s session.
Key Levels: VIX is bullish above 18.5 targeting 20, 22, then 25. Bearish below 17 targeting 15-16.
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