A Bullish Day, But The Downtrend Isn’t Broken…Yet
Markets put in a bullish day on Thursday, though not yet decisively breaking the downtrend. The VIX was crushed back to the 17s, which may imply more downside, but some indicators are already oversold to levels associated with VIX reversals in the past. GEX currently indicates limited upside over the next two weeks, but that upside would certainly upset the chartists, breaking the downtrend line while lacking follow through. GEX can certainly shift as the market rises, but the possibility remains that big overhead resistance could usher in the next leg lower.
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SPX May Reach 7500 Soon- If A Backtest Holds
After landing within 14 points of 7300, SPX saw a shift toward a more neutral GEX position as we look ahead over the next two weeks. We now see a large net positive GEX cluster at 7500, though not much above that at the moment. Total flow was also negative today, so we may see an attempt at yesterday’s lows. How a pullback is handled will dictate our odds of being able to call Wednesday’s drop a low, with 7350 being an important area that needs to hold.
Key Levels: Bullish above 7450 targeting 7500. Bearish below 7400 targeting 7350, 7300.
QQQ May Reach 700, Needs To Hold Above 690
QQQ and SPX have stayed fairly close to the declining HMA for the entirety of the July decline, and bulls really want to see that line start to level out, or even better, reverse back up again. The current momentum lower implies the possibility that a move higher will soon face mean reversion back to the HMA at an even lower level. This is where we bring GEX into the picture to help us formulate an overall view based on more than just the price action from the past: We see a very large “cliff” at 680, representing important support at the moment, with 660 the next big focus beneath 680. Overhead, we see large GEX clusters at 690 and 700. In conclusion, GEX indicates good odds of further upside testing 700, but the current view shows 700 as a ceiling. Losing 680 could bring 660-650. We will seek additional info as the cash session starts and the 0 DTE GEX picture becomes in focus.
Key levels: Bullish above 690 targeting 695, then 700. Bearish below 680 targeting 660.
The VIX Shows Positive Flow (Again) Above The 20 Strike, Limited Downside
The VIX was crushed almost back to the weekly HMA at 16.85, an important line in the sand for continuation higher. The GEX picture doesn’t indicate a lot of interest by participants in levels below 16, so further downside is likely limited, though the VIX reaching 16 doesn’t automatically mean that the VIX spikes, either. Failure to recapture 18 may imply either further downside or a consolidation period where the VIX is choppy in a sideways pattern. We do see positive option flow at 22, and the last several times we saw positive flow at higher strikes, we ended up with the VIX spike above 20. We then saw negative option flow, signaling the drop in the VIX today. Not that every spike or dip is met with a 100% certain signal from option flow (maybe, but I haven’t checked), but lately it’s been helpful.
Key Levels: Bullish above 18 targeting 20-25. Bearish below 17 targeting 15-16.
The VIX 1-Hour Chart Is Ripe For Possible Reversal
In closing, the VIX 1-hour chart is already near the lower Keltner channel and we see the %b indicator at the 0.00 area again. The odds of a VIX reversal from here are quite high considering prior instances that look similar, but the real question will then become what the VIX does at the 18-18.5 area. A breach to the upside could definitely bring 22+. while failure could see the VIX move toward 16. Market bulls will want to see the VIX fail at 18.5 and the market (as defined by SPX) hold any drop toward 7350.
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