Planets Align Into CPI
The pre-dawn sky on Wednesday will see as many as six planets visible in the sky, then an eclipse happens at dusk, and then Perseids meteor shower will peak into the new moon. What does it mean? Well, all we can know for sure is that there will be some astrological traders curled up under their desk while they rub their moon rocks and pray to the Egyptian god Khonsu, but beyond that, any correlation to market performance is likely coincidental. Keep reading for your Tarot card drawing at the end.
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SPX Closed Well Below The Daily HMA Elevates SHort-Term Risk Of Pullback
SPX closed the cash session a full 25 points below the daily HMA, a margin I consider to be significant enough to warrant caution regarding a larger pullback. We all know we’re overdue for one, right? Sorry to the “500 points in a straight line is only the beginning!” crowd (not the astrology crowd in this case). We also saw negative net option flow (filtered for this week). With CPI tomorrow morning, anything can happen, including a whipsaw that resolves with little change by the open, so we’re looking at action around key levels to help us form expectations of what might be next. At this time, the 9 SMA near 7660 and/or the largest negative net GEX cluster expiring tomorrow at 7670 are of interest as a downside target, but only once we see 7700 lost. A move back above 7750 could target 7800.
Key Levels: Bullish above 7750 targeting 7800. Bearish below 7750 targeting 7700, then 7670, same as yesterday.
QQQ Closed Below 720, Increasing Odds Of 700-710
QQQ closed below the large GEX zone at 720, also barely closing below the HMA. If SPX continues toward 7670-7700, we may see QQQ head for 700-710. In both cases, we’re viewing any pullback as a potential buying opportunity given the overall positive skew toward higher targets looking beyond the next two weeks. QQQ option activity was more positive than SPX today, but when I typically see divergence between the two in the short run, I side with SPX as the index providing more useful clarity, mostly due to the difference in participants (fewer retail traders involved in SPX) between the two. As for QQQ, we really want to see the pivot at 720 recaptured to open the door to 730-740.
Key Levels: Bullish above 720 targeting 730-740. Bearish below 720 targeting 710, 700.
WMT May Be Headed For 120
Defensive stocks have not performed as well lately, and WMT certainly fits the category. Since July 22, we’ve seen a consolidation mostly sideways, yet we see a series of higher lows, and today’s close was the 2nd day above the HMA. GEX is positive overall, and the GEX picture seems to agree with the daily chart: If WMT can get above 115, 120 may arrive fairly quickly. Perhaps some of the defensive stocks can rally in the event of the high beta names taking a breather? We may find out soon. The upper Keltner channel matches fairly closely to 120, so I will watch for some consolidation or retest of 115 after we get a spike to 120, if we get one.
Key Levels: Bullish above 115 targeting 120. Bearish below 112 targeting 110, then 105.
The VIX Closed Above The HMA For The First Time Since July 29
The VIX GEX picture is quite negative, though we typically see such one-sided pictures near VIX bottoming zones. You can see the VIX has only been this low a few times this year, so counting on continuation lower is really counting on a regime shift for the VIX to lower levels. Sure, that can happen. Bessent seems like he could go head-to-head with Janet Yellen’s 2017 playbook. But we’ll leave that speculation to someone else, we want to see more evidence before considering a lower VIX. The VIX being near a low does not mean the VIX must spike, but I would still prefer to purchase insurance when it’s cheap, to use an analogy. We saw noteworthy volume today at the 35 strike, 153,000 contracts. We also see the VIX above the HMA for the first time since the end of July, and I consider the crossover above or below the HMA to be an important signal of a potential trend change afoot. Given the overall bullish GEX structure for indices, we do not have a VIX spike to 35 as our base case, but we can definitely see VIX 20 if we see a spike above 16.5 in the near-term. Now we wait and see what CPI might give us tomorrow.
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