On A Mission Into Quarter End
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Today’s YouTube video gives a great overview of what’s happening in the markets, as well as some individual tickers. You can view it by clicking here, and it’s only a few minutes long. I think in today’s newsletter, we need to zoom out and look at the weekly charts given the determined and dynamic decline we’ve seen as we head into quarter end. Could the ongoing drop be as simplistic as bottoming right at quarter end, prior to new monthly flows assisting with some sort of rebound? Sure, though even if we do bottom tomorrow, we still don’t have a firm grasp on where we might bottom or how long it may take to see a recovery. It’s also possible we’re positive tomorrow and then resume the decline into April. Let’s look at a few potential clues:
SPX has already given up the entirety of the recent rally, and the lower Dealer Cluster zone has shifted down as well. I also notice the large GEX cluster at 6000 is all but gone on a net basis, which is concerning in the short run.5400-5500 is currently the next area where we might look for a bounce, even if only temporary. The Keltners are pointing lower and we’re below the Hull, so combined with negative GEX, we have an overall situation that tells me to look toward the short side until evidence says risk/reward is no longer skewed in that direction.
Unfortunately, even with the turn south, SPX is still not that close to reflecting a GEX extreme, meaning we can see markets move even lower before triggering a potential GEX contrarian signal.
SPX GEX reached a new low Friday compared to recent GEX lows, confirming we’re in a solid downtrend.
Let’s zoom out and look at the weekly chart. On a weekly basis, we rejected from the Hull moving average last week, sending us on a higher probability path lower toward the lower Dealer Cluster zone (5400-5500) and potentially also the lower Keltner channel, which is somewhere between 5365-5425, depending on whose Keltner channels you’re reviewing (we won’t get too deep into the weeds on that topic). Regardless, the range 5365-5425 fits well within the GEX 5400 lower current area.
But how deep can the drop go and how long might price take to recover? Let’s look at every example over the last 5 years where SPX came close to the lower Keltner channel on the weekly chart or perhaps overshot it to the downside. We only have a few examples, but most of those examples show that a dip buyer would have at least had some opportunity to exit at higher prices within the next week, though two examples (2020 and the 1st half 2022) show buyers having to wait 2 weeks to see a sizable rebound from that lower weekly Keltner.
We see virtually the same thing with QQQ, though QQQ looks even stronger, no surprise given its role in market leadership over recent years. QQQ may be headed for the low to mid 440s if the drop continues.
The bottom line is that we may see the market continue its slide lower, and it may have another 3-4% downside, if not a little more. But recent examples show that touching and/or exceeding the lower weekly Keltner ended up being a good buying opportunity a few weeks out, even if the rally was within a larger bear move. This time may be different, which is always a risk, and we used the bounce to put on new hedges against our longs just in case. But we’ll continue making intraday adjustments based on what GEX tells us and we’ll look for extreme readings to initiate contrarian moves. It’s not easy buying powerful declines and we definitely want to wait until we see more evidence of reversal.
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