SPX Bears Receive Endangered Species Status
Shorting too early can be detrimental to a directional traders’ health, and today was a great example, with SPX rising a whopping 136 points and QQQ rising almost 24 points. Yesterday’s newsletter suggested that SPX holding over 7600 would target 7700, as unlikely as that seemed, and yet here we are, at 7736. Alas, we also see the VIX up by a greater percentage than the S&P, and we said the VIX was primed for a move toward 18. We haven’t seen 18 yet, but that elusive “pullback” may be right around the corner…Whether bears have to endure one more day of pain or so is yet to be seen.
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SPX: Weekly GEX Is Mostly Between 7600-7750, Option Flow Negative
The rally we saw in SPX on Monday brought the index close to previous highs, also shifting the appearance of the pattern to one of continued consolidation sideways since May. A few problems exist:
1) SPX 190 points above the HMA is often met with mean reversion, though the most bullish cases could see reversion occur by the HMA rising
2) Cumulative net flow (a measure of net options activity today) was negative by an eye-popping -1.1B, starkly contrasting with the euphoric price action.
3) The bullish rally brought SPX right into the upper Dealer Cluster zone, where we assume dealers may become sellers.
GEX shows most of the focus between now and OpEx (Aug 21) is between 7500-7600. I’ll note that the net GEX picture (not shown in this newsletter) shows most of the net GEX is positive and concentrated between 7600-7900. In summary, the picture leans positive, and any dip toward 7400 may end up being a good buying opportunity if the upside scenario plays out. Any straight-line move toward 7700-7900 is a red flag of a major high, in my speculative and subjective view (I’ve seen what happens when you stretch a rubberband far enough).
Key Levels: Bullish above 7600 targeting 7650, 7700. Bearish below 7600 targeting 7550, 7500.
QQQ Closed Rallied 23 Points, Closed Above The HMA, Limited Upside
While SPX paints a more positive picture overall, with a rather negative Monday in particular, QQQ is the opposite: Looked great today, yet paints a subdued picture looking forward. The Story Stock Special is still fighting a downtrend, well below previous highs. The semiconductors aren’t doing much conducting these days, whether semi-conducting or fully conducting, fighting every day to keep their chart from looking like an Eiffel Tower illustration using chart candles. Maybe one day we can reflect on the logical fallacy of a bubble reliant upon copper, while none of the copper producers (nor copper itself) rallied like the copper-dependent sectors did..We’ll save that one for another day.
710-711 give us a potential upside target looking at GEX as well as the declining weekly HMA, and QQQ has a similar issue as SPX with the HMA being far below, near 675.
Key levels: Bullish above 700 targeting 710. Bearish below 690 targeting 680, 660.
IWM Fulfills A Close Above 300, 310 Next?
A fundamental argument exists that small caps are very undervalued relative to their large cap peers, and the chart seems to reflect this narrative, at least for the moment. IWM looks bullish, even with capped upside in the near-term. GEX points to another test of 300 and the HMA at 299 is close enough to consider 300 a live target, barely 1% away. The largest net GEX cluster is at 285, not very far below, so any drop in IWM may be relatively shallow, barring a real-time shift in GEX to lower strikes. Flow was negative today, consistent with what we see with SPX, so some caution is warranted on the huge push with the major indices today.
Key Levels: Bullish above 295 targeting 300, 310. Bearish below 300 targeting 290, 285.
The VIX Picture Is Less Clear- Downside Or Upside First?
The VIX is in the 15-16 zone that has marked bottoms all year, with a few starting days of 2026 as the exception, when we saw the VIX crossing through 14 on its way to the 30s by March. Furthermore, the GEX picture still dries up below 15, and net options activity was largest at the 19 strike. So tell your youngest son (now 25, at home for the health insurance) shorting the VIX in your basement that he might want to keep in mind that Yellen isn’t in charge of the Fed, even though we have the same President.
Given the bullish SPX picture overall, I am hesitant to assign high probability of a near-term spike beyond 20 again, but we could certainly retest 18-19 this week, given the setup.
Bullish above 16 targeting 17-19. Bearish below 16 targeting 14-15 at most (limited downside in our view).
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