Preparing for an FOMC Reaction
IWM might be the best contrarian story lending toward a market bounce, with multiple extreme negative GEX readings, incredibly closing at -2.2B today. Extreme readings below -2B for IWM’s GEX have been good bottoming signals. Apparently the market is pricing in a certain rate hike, and maybe an entire series of future rate hikes. Retail trader Max Payne (24, M, single, owns a cat that his mom cares for) can’t short enough from the comfort of his mom’s one-windowed basement heading into FOMC. Maybe Max is right this time, maybe we crash. Or will Warsh whisper something about “patience” and “not being sure” about future rate hikes, sending shorts into a covering frenzy? Maybe the contrarians like me will get lucky and we’ll see high and low extremes for once (in recent history, at least). In all seriousness, we see risk toward 7500 and the VIX reaching 20, but a move above 7600 could see 7700, so we’ll be tactical tomorrow as we see reactions at what we view as key levels.
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The HMA at 16.66 Holds as Support, VIX Shows Risk of Spike to 20
The HMA at 16.66 is one devil of a level (don’t worry- the jokes and the masterful poetry are free), holding as support for the VIX as we see consolidation ahead of FOMC. The VIX monthly options expire in the morning before the cash session opens, and most of the GEX is between 17-20. The 17-area is now a line-in-the-sand for a move toward 20 or a breakdown back to the 15-16 zone. Lower timeframes are a mixed bag, with the 1-hour chart looking bearish for the VIX, the 2-hour looking neutral to positive for the VIX, and the 4-hour looking positive for the VIX. As usual, the night crew may have the most fun, but we’ll see where we open tomorrow morning, with an eye toward a possible 2nd pivot during or after FOMC.
Key Levels: Bullish (for the VIX) above 17 targeting 20. Bearish below 17 targeting 16, then 15.
QQQ Stays Tight, 700 GEX Stays Large, Poker Face into FOMC
QQQ is still waiting on FOMC before revealing its next move, with focus on the 700-710 zone. QQQ dropping below 700 will likely see a big shift toward lower strikes approaching 680, while a move above 710 may target 730-740. QQQ is near the middle of a large Keltner range between 682.7 and 749.37, so the next trending move may see some momentum 3%-4% either way.
Key Levels: Bullish above 710 targeting 720-730 initially. Bearish below 700 targeting 690, 680.
SPX Net GEX Into Thursday Shows 7500-7700 Range
Let’s take a look at the SPX net GEX picture from now until Thursday’s close: Most of the GEX is between 7500-7700, with 7600 and 7625 representing big pivot zones. We do see net GEX down to 7450 to some extent. My current view is that a drop toward 7500 is a buy. Any rally toward 7700 may be a short, so we’ll plan to react to either a move beyond 7600 or failure to close above 7600.
SPX 1-Hour Chart Looks Promising for Bulls- 7600 as the Trigger
Looking at the same Tuesday-Thursday GEX picture, but against the 1-hour chart and with gross GEX selected, we see most of the GEX is between 7600-7675. The Keltner channels and the HMA almost down to the lower channel look bullish to me. As soon as SPX crosses over 7600, we could see a fast move up to 7625 or 7650.
Key Levels: Bullish above 7600 targeting 7650, 7700. Bearish below 7650 targeting 7600.
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