SPX Holds ANother 7600 Test, CHoppy Through FOMC?

In our newsletter sent out before today’s cash session open, we identified 17-18 for the VIX as a likely resistance area, especially going into FOMC. Traders just aren’t willing to commit to doomsday leading into FOMC. Afterward may be a different story, but for now, we see an expected choppy trading zone into Wednesday’s announcement and press conference. Leading up to Wenesday/Thursday, SPX GEX remains in a tight range between 7600 and 7700. Add Friday’s GEX to the mix and the range expands to the downside, 7500-7700. This entire picture can change drastically Wednesday, so we need to see what happens with FOMC and repositioning in the VIX following the monthly VIX expiration premarket on Wednesday.

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VIX Reached 18 as Anticipated, FOMC Flashpoint in Focus

The VIX tested the 18-level premarket and saw rejection as the cash session unfolded, dropping back to the approximate area of the daily HMA just above the large negative GEX cluster at 16. Maintaining above 16 looks bullish for the VIX, and 20 remains a live risk into Wednesday. We acknowledge the lack of GEX below 15 and the presence of positive GEX up to VIX 30 and beyond. This may be due to participants hedging into FOMC, a potential contrarian signal, so we want to monitor key areas heading into Wednesday for signs of a stronger shift in either direction.

Bulls want to see the VIX below 16 to open the doors to a test of 15 and a market rally higher, or contrarian bulls (such as myself) wouldn’t mind a VIX spike to 20 or higher just to give us some cheaper year-end rally inventory. While a large net negative GEX cluster rests at 16 (the largest cluster expiring Wednesday, FYI), we see a large gross GEX cluster at 17, just below today’s close, so the next 24-hours may be dictated by whichever side of 17 we see the VIX choosing as Tuesday begins. Can we get a traditional Turnaround Tuesday (meaning market rally) since we saw a negative Monday for indices?

Key Levels: Bullish (for the VIX) above 17 targeting 20. Bearish below 17 targeting 16, then 15.

SPX Waiting on FOMC, Could go Either Way Despite Closing Below Resistance

Looking at SPX GEX from tomorrow through Thursday, we see the primary focus between 7600-7700, with 7650 and 7675 standing out notably. Unless we see negative GEX grow more substantially below 7600, GEX odds seem to favor an attempt toward 7675 into Wednesday/Thursday. The presence of GEX scattered all the way up to 7800 and all the way down to 7400 potentially shows some uncertainty heading into Wednesday, so we want to watch if GEX appears to be growing on either side of 7650 as we approach Wednesday.

Adding Friday GEX to This WEek’s SPX GEX Picture Gives Additional Context

When we add Friday to the GEX picture for SPX, we see an increase in positive GEX from 7400-7800, though we also see negative GEX at every 50-point increment, giving us a wider range of potential targets, and most of those targets point lower. Such a wide potential range of outcomes leads me to consider reacting to whichever extreme is reached first, or reassessing whether or not the “extremes” we see today are still reflected as extremes Wednesday, if the GEX picture changes.7650 appears to be the pivot for now.

Key Levels: Bullish above 7650 targeting 7700, 7750. Bearish below 7600 targeting 7550, 7500.

IWM Has Reached an Extreme Negative GEX Intensity Reading, Potential Contrarian Signal

IWM has reached or came close to reaching an extreme negative GEX reading several times this year, with each instance seeing a rebound soon thereeafter. IWM reached -2.1B as of today’s close, so we are “there.” IWM may continue lower, but such an extreme reading is often associated with bottoming or reversals. This contrarian signal may bode well for broader indices in coming days, if prior occasions prove to be similar to this one.

IWM is also Near the Lower Keltner Channel, in the Dealer Cluster Zone

IWM is near the lower Keltner channel just below 285, also coinciding with a thick area of negative GEX between 280-285, drawing my attention to this zone as a possible target but also a good potential buying opportunity. Even if IWM’s future isn’t bright, a rebound toward 290-300 from 280 seems like a good risk/reward situation based on the GEX picture. The HMA may still drop toward 285, so I will currently await a crossover of the HMA (now at 289.43, declining) to become more bullish on IWM.

Key Levels: Bullish above 290 targeting 300, bearish below 290 targeting 285, 280.

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