Buy The SPX Dip, Or Rebound Dead? April 13 Stock Market Preview
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Before we get into the market, I’ll mention tonight’s YouTube video, which features a discussion about SPX, the VIX, BTC, META, and AMD, so check it out if you have a few extra minutes! You can view the video as well as our library of previous videos by clicking Community at the top of our homepage to find our YouTube channel link.
While I’m typing this newsletter as futures are solidly red, I’m going to address some possibilities as we saw them Friday, because plenty of potential warning signs existed in advance of the drop that we see. You can also view Wednesday’s and Thursday’s newsletters for additional context surrounding some of the indicators we watch and why we choose to watch them.
Starting with IWM, which I’ve viewed as relatively more bullish in appearance than other major indices, we see last week’s weekly chart showing a big green candle, with the weekly close not far from the high of the week.
One potential problem technically arises from IWM’s distance above the weekly HMA, which is still in a decline (though less steep relative to prior weeks).
I underlined and overlined a few visible instances where we saw price stretched far above or below the HMA, and in the selected cases I reference, you can see it didn’t take long for mean reversion to occur. Sometimes this involved a quick drop or rise right back to the line, or other times we see a 2-3 week sideways chop while the MAs caught up with the price move.
This one point alone didn’t bode well for a continued push into the stratosphere.
The GEX picture saw a huge move from negative to positive, then a decline in net GEX as of Friday’s close, with large net clusters we’re watching at 250 initially on the downside, and 264/270 on the upside.
While bullish or bearish scenarios can still play out following the drop that is in motion in the futures market, we’re leaning toward a bullish rebound from a higher low given the current available information. As usual, we’ll take it one step at a time and adjust our view based on information given by the market as tomorrow’s cash session unfolds.
The VIX was also stretched, but to the downside, with net GEX going from net positive to a net negative extreme Friday, and resting just below the 20 strike, also barely below the weekly 50 EMA.
Friday saw the highest volume at the 25 strike, which I view as a logical target in a volatility rebound scenario, also matching the upper Dealer Cluster zone (the largest net positive GEX cluster).
If the VIX does stop at 25 or wick back down after crossing the 25 strike, we may see continuation higher for indices, theoretically matching a higher low on stocks.
Negative GEX at 17 and 18 suggests at least a possibility that any resumption of the VIX crush could target those lower strikes. But first, we need to see how the upside move develops.
With QQQ and SPX, let’s switch to the daily chart, which I feel show enough to convey the point demonstrated by IWM’s weekly chart.
Looking at QQQ’s chart, I excluded Friday’s GEX that expired as well as any volume associated with Friday’s expiries, giving us a look at where the options market was busiest on Friday.
Take a look at the volume at QQQ 580. Net GEX suggests 585 and 600 are worth watching, but ultimately, that 580 strike+volume looks to be an interesting spot, if QQQ can make it there in the next day or two.
Net GEX has increased at higher strikes for QQQ up to 630, so we’ll want to see if the entire market repositions after tonight’s drop. If the GEX picture largely stays intact, QQQ is looking like a dip buy.
SPX’s daily chart also excludes Friday’s GEX that was set to expire as well as volume associated with any of Friday’s expirations. This exclusion reveals an interesting dynamic looking ahead for SPX: A lot of volume at 7000.
We still have the big gap from Tuesday, and the HMA at 6681, so the current futures move and overall odds seem to favor the ongoing pullback prior to an attempt toward 7000 again. How long and how deep is the pullback expected to last? We need more clues from the GEX picture and price action Monday, because the dip overnight may not last long, or it could be days, we can’t say for sure.
SPX did give us an interesting clue of sorts at Friday’s close: Net GEX dropped from over $2.2B to only $500M, a $1.7B decreased in a day. The net figure is still positive, though within neutral territory. We still lean toward buying the dip, even considering the decrease to a lower positive GEX number.
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