SPX GEX Shifts Bullish, Whipsaw Risk Remains
The downtrend line for SPX draws attention to the 7700 level, which is likely to be tagged in coming days, if Friday’s upside momentum continues. Risk exists down t0 7500 or lower, and the VIX is potentially indicating an interim bounce for volatility before SPX tackles 7700-7800 upside targets. Let’s take a closer look at potential scenarios as we enter quarterly OpEx, monthly VIX expiration, and FOMC this week, with apparently 85%-90% odds of a rate hike.
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SPX Faces Important Test at 7700, Risk Exists to 7500 WIthout a Daily Close Above 7700
SPX failed to close above the declining 9 SMA or the HMA Friday, though the downtrend could technically be considered to be intact even with a tag of 7720. Futures are lower to start Sunday evening, potentially indicating a backtest of the 7600 level. Looking at GEX into this upcoming OpEx Friday, we see a likely range of 7500-7800, with 7600-7700 representing larger GEX zones than other strikes. Given the GEX at 7600, and the 50 EMA at 7603, I’m inclined to be a buyer if we open above or recapture 7600, but any sub-7600 readings may raise the risk of a 7550 test. With FOMC and VIX expiration Wednesday, this OpEx week may prove to be an unusual one, so I plan to keep my parameters a bit tighter than normal, with extra focus toward tactical levels and signals given by our Market Velocity tool.
Key Levels: Bullish above 7600 targeting 7700, then 7750. Bearish below 7600 targeting 7550, 7500.
QQQ Looks Better Than SPX- 700 Retest Still Incoming?
QQQ has consolidated in more of a sideways fashion than SPX, leading to a more bullish appearance of the overall chart. GEX is mostly concentrated between 700-730, and we haven’t even seen a retest of 700 yet. Sunday evening’s action shows a sub-705 level being hit, lower than Thursday’s low, so we may still test 700 leading up to FOMC. 715 continues to be an important bull/bear line-in-the-sand, with 720-730 appearing likely with a daily close above 715.
Key Levels: Bullish above 715 targeting 720, then 730. Bearish below 710 targeting 700.
IWM Closed Higher Than Thursday, Still Rejecting the HMA
IWM has a lot of negative GEX reflected at the 290 strike, so we could see a nice short squeeze if IWM can hold above 290. Such a move would likely target 300, then 310. The HMA has been declining, taking price with it in uniform fashion. It’s possible 280 is a target if we continue lower, but otherwise, contrarian signs point to a bounce soon, including net negative total GEX exceeding 1.9B. IWM has been a reliable contrarian indicator at the extremes, so being near -2B is pretty close to what our prior readings from the last 52-weeks would consider extreme. Recent readings close to this level of negativity have resulted in rallies for IWM, though the sustainability of such rallies varies.
Key Levels: Bullish above 290 targeting 300, then 310. Bearish below 285 targeting 280.
The VIX Closed Above Key Support, Eyes on VIX 17
The VIX had a big gap down Friday, testing and holding key daily support levels around the 15.70 area. The current closing level above support appears to be vindicated with Sunday night’s VIX rally above 17, but 17-18 for the VIX may be resistance for this move, particularly heading into FOMC. Non-emotional participants lacking inside information (too obvious of a qualification?) may be reluctant to bet too heavily on a larger VIX spike heading into a potentially binary event like FOMC.
2-Hour VIX Suggests VIX Bounce Toward 17-18 May Meet Resistance
The 2-hour VIX chart presented a compelling reason for a possible VIX spike, with the VIX rapidly dropping toward the lower Keltner channel as the HMA raced downward toward that same lower channel. Meanwhile, %b dropped back toward 0.00, completely resetting the VIX toward a risk/reward scenario tilted toward temporary upside. We may see a short-lived bounce toward 17-18, and beyond 18 targets 20, but overall odds seem to favor the VIX dropping back into the 14s-15s.
Key Levels: Bullish above 16 targeting 17-18, bearish below 16 targeting 15, 14.5.
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