Volatility During OpEx?
In yesterday’s newsletter, mysteriously and cryptically titled “The Case For A Pullback Grows,” we identified several factors that sometimes precede market pullbacks. We saw relative strength today from QQQ, largely thanks to MU, though QQQ still closed below the 730 level that we described as a possible pivot toward 720 or even 700 in a more lively/entertaining scenario. SPX closed below 7750, opening the door potentially to 7700 or 7680, and the VIX spiked and held above the 9 SMA. OpEx may yet have a happy ending by Friday, but we need to see if the levels we discuss tonight hold on further weakness.
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QQQ Needs To Retake 735 For Continuation, Hold 720 On Weakness
Our chart below shows GEX for the next two weeks, which is fairly narrow for QQQ, with most GEX concentrated between 720-740. Sometimes SPY and QQQ show more narrow ranges than SPX, potentially due to the different set of participants, with more institutions trading SPX, and more retail trading QQQ and SPY. I don’t believe QQQ is likely to remain in a mere 2.5-3% range for 2 weeks, but it’s possible in a sideways consolidation scenario. I believe 750 could end up being a more realistic upside target, based on option activity and the upper Keltner channel, with 700-707 representing an important lower support range QQQ needs to hold for continued upside. The current situation with QQQ below the HMA presents an overhead resistance at 735 that needs to be overcome on a daily close to target 750, in my opinion.
Key Levels: Bullish above 735 targeting 740, 750. Bearish below 720 targeting 700, chop between 720-730.
SPX May Test 7680-7700, Still Looks Bullish Above 7600
We’re still getting used to 100 SPX points only being 1.3%, so keep that perspective in mind. SPX dropping to 7600 only fills a gap during the breathtaking rally from 7300 to 7800 and gets us about halfway back on that move higher. I’d say a drop stopping at 7600 still looks quite bullish..Don’t worry, for those of you who don’t like rollercoasters, SPX has some big GEX clusters at 7650 and 7700 that would have to be overcome in order to see 7600. But please also acknowledge that 7600 is basically 1.9% lower than 7745, and I’d say that’s hardly a rollercoaster, that’s a micro dip. As we look at GEX for the next two weeks, we see a ceiling at 7800, though the technical resistance of the HMA at 7841 and the upper Keltner at 7851 have opened my mind to a move beyond that large GEX area. 7600 isn’t far from the 50 EMA and I wouldn’t mind being a buyer at that point, if we even reach it.
Key Levels: Bullish above 7750 targeting 7800, 7850. Bearish below 7700 targeting 7670, 7650 initially.
The Largest Net GEX Cluster For The Next Two Weeks Is The August 19 7720 GEX
Let’s get granular and look at the 3D graph: While overall GEX is positive for SPX, meaning the sum total of all of the visible net GEX clusters is greater than the net negative GEX, the largest net GEX at any one expiration date is at 7720, expiring Wednesday. I find this interesting given that Wednesday represents the monthly VIX options expiration. Perhaps we get a mid-week low, kill the short vol crowd, then rally into Friday? It’s one of many possible pathways, at least.
VIX Moving Averages Still Declining, Quick Move To 17-20 Or Back To 14?
Monday saw a gap up for the VIX that held the 9 SMA at the close, seeing GEX shift higher toward 15 instead of 14. Failure at the 15 EMA and the large negative GEX at 15.5 introduces some uncertainty: Does the VIX lose the 9 SMA and retest the still declining HMA near 14, or do we head straight for 17-20, potentially marking a buyable low in stocks? In coming days, as we approach VIX expiration, I’ll be watching VIX action to see if it can close above 17 and turn the HMA higher, possibly targeting 20, or if we settle back into a prolonged range of 14-16.
Key Levels: Bullish (for the VIX) above 15.7, targeting a test of 17, then 20. Bearish below 15 targeting 14.7, then 14.
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