SMH Pummeled, VIX Yawns: May 19 Stock Market Preview
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The first post-OpEx trading day of May was an interesting one, with SMH seeing follow-through to the downside with almost a 10-point drop from Friday’s close and a roughly 28-point drop from the intraday high to low. SPX was down modestly and QQQ was down a bit less modestly due to the influence of SMH. The VIX didn’t care about any of it, bucking its trend of seeing some elevation on Monday by deciding to sleep through the entire day.
SMH saw another unusual day of volume at 500, and this time, we see a lot of GEX that has built at 500 as well, putting that strike on our radar as a possible pullback target. Friday saw 119k contracts trade at 500, while today’s volume was over 38k.
The drop also brought SMH back within the Keltner channels on the weekly chart, which is more typically near the upper limit of where price ventures. If we see continued downside, the 500-520 area has confluence both with GEX and also the lower Keltner on the 2-hour timeframe.
Some timeframes suggest a bounce is possible before more downside, in which case I’m looking for lower highs to hold, with 550-570 presenting a wide range of potential resistance points, both technically and GEX-related.
NVDA earnings are after hours Wednesday, which will certainly impact SMH and the entire market. Daily and weekly timeframes suggest a tag of 240-250 is possible, though it’s difficult to say if such a move will last until Thursday’s open, if we see such a tag at all. Perhaps a rally will bring SMH back to the top of the resistance range mentioned near 570?
The VIX has monthly option expiration coming up this Wednesday premarket, with most of the negative GEX currently between 17-18.
The issue I see is that the VIX is holding above key rising moving averages, including the 9 SMA and the HMA.
Another potential contrarian positive for volatility is the very narrow range we’ve seen over the last two weeks, all while the VIX is making higher lows, forming a triangle of sorts. Volume is lacking below 17 and we see the largest volume today in particular at the 35 strike.
While it’s possible the VIX stays tame in the 17-18 range through Wednesday morning, a risk exists of an immediate spike toward 20, which (if it happens) will require observation to see whether or not the VIX rejects the 20 area, or just goes straight for 22-25. Potentially tricky days ahead as the market may see some sort of rotation to sectors out of favor while the VIX spikes and main focal points like the semis crash land back to earth. At least that’s one of many ways a pullback might play out.
QQQ closed below both the 9 SMA and the HMA on the daily chart, a potentially concerning sign that the downside may only be beginning. On the flip side, QQQ is close enough to the 9 SMA at 707.89 to make a quick recovery and retest of the HMA at 722.50 believable.
QQQ needs to lose 700 to improve the odds of a quick drop to 670-680, so watching what happens on a test of 700 may be key, unless we head straight for an upside resistance test first.
QQQ’s net GEX has declined 3 days in a row, entering negative territory with a lower reading than any time over the last month.
The move into negative GEX territory definitely seems to back the idea that we may see more downside, especially when combined with the VIX data we’ve been watching and today’s action in the semiconductors.
SPX also saw a close technically below the 9 SMA, and it’s well below the HMA at 7486.62.
Volume was heavy at 7000 and 7400, and we still see a meaningful amount of GEX at both strikes, the latter being a relatively new development as far as 7400 is concerned.
The proximity to the 9 SMA and the GEX at 7400 might be a defining zone similar to QQQ at 700: The next move above or below may indicate a short-term trend in one direction of at least 100 points, though a more annoying scenario could also unfold that would see indices hugging this line for some time. Either way, we should know soon whether or not we will get directional resolution.
We will wait for the cash session tomorrow to see what the 0 DTE picture is telling us and we’ll be sure to share some of our observations for free in Discord!
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