Looking at SPX GEX for the Upcoming Week
Friday saw continuation of Thursday’s rally, and we noted beforehand that the charts looked bullish (with some help from GEX, of course). SPX still stopped shy of 7750, and closed below the daily HMA by mere pennies. Tonight’s newsletter looks at GEX this upcoming week and the likelihood of tagging 7800, though downside risk to 7600 needs to be addressed, especially in light of the VIX.
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SPX Appears Likely to Test 7800, but GEX is at Prior Topping Zone
Let’s look at SPX from a slightly different perspective that we typically do, using historical GEX data to look at recent days with closing net GEX readings as high as Friday: We consider positive GEX readings to be generally in agreement with favorable upside prospects, but you know the saying about too much of anything being a negative..The same is true when it comes to GEX. SPX has definitely been more extreme than 1.7B over the last year but looking at recent readings around the 1.7B area, they’ve consistently marked tops. I highlighted a few examples in the chart below.
The GEX picture strongly suggests 7800 as a likely target, in contrast to the short-term potential top indicated by GEX, so let’s look at three scenarios:
-Scenario 1: SPX drops to the big GEX pivot at 7700, then moves to 7800, then down, either chopping more from 7700 or continuing lower.
-Scenario 2: SPX moves to 7800 immediately, fueling the move using offsides Sunday evening bears, then drops, with reassessing the next move at 7700.
-Scenario 3: SPX breaks down below 7700, moving to 7500 before a strong Q4 rally to 7800-8000 by year end.
Key Levels: Bullish above 7750 targeting 7800. Bearish below 7725 targeting 7700, then 7675.
QQQ may Reach 755, but 730 is also a Looming Potential Target
QQQ came very close to tagging 750 premarket Friday, reaching just below 749 before fading. The cash session high was 745.51. GEX indicates that 750-755 are still potential targets, but 730 also looms large below, also within the lower Dealer Cluster zone where we may see dealers flipping to being buyers of QQQ. We also see a similar phenomenon of high GEX readings accompanying high stock prices, leading to turns to the downside.
-Scenario 1: QQQ drops to 730, then moves toward 750, then we reassess if we’re likely to climb higher or consolidate.
-Scenario 2: Immediately move toward 750, potentially 755, then drop to 730.
-Scenario 3: Drop to 730, then drop more toward 715 before rebounding higher.
Key Levels: Bullish above 745 targeting 750, 755. Bearish below 745 targeting 730.
GLD has Risk to 380, but the Upside Scenario still suggests 450
GLD still looks bullish, with the recent consolidation filling a gap and staying in a large GEX area between 390-400. GEX indicates risk down to 380, which also marks the lower Keltner channel, also close to filling another gap. Net GEX is significant at 450 and total net GEX is positive. Even with continued downside to 380, risk/reward still appears to be tilted toward upside for GLD.
-Scenario 1: GLD tests 380, then recovers above 400, targeting 450.
-Scenario 2: GLD recovers above 400, then continues to 450.
-Scenario 3: Traders realize GLD actually owns pyrite, GLD drops below 380 and never recovers (hopefully kidding?)
Key Levels: Bullish above 400 targeting 450. Bearish below400 targeting 390, 380.
The VIX may be Near Another Turn, 14-14.5 Could Still be Tested
The VIX shows oversold conditions on lower timeframes, and the Keltner channels look constructive for volatility, potentially indicating another bottoming process near 14 before testing the 16-17 channel and possibly breaking out. While net GEX moved negative after hours Friday, Friday’s cash session closed with the highest positive GEX reading on the VIX since September 23, the day immediately preceding a big VIX gap up. Even if the VIX does rally, 16-17 is the test that matters, with a potential rangebound scenario also possible.
Scenario 1: Spike toward 16.5-17, reject again, trade between 14-16 before another decision is made by the market.
Scenario 2: Drop toward 14, then spike toward 16-17, potentially toward 20.
Scenario 3: New VIX regime sees a drop toward 12-13 without any further spikes in between.
Key Levels: Bullish above 15 targeting 16-17. Bearish below 15 targeting 14.
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