NVDA And VIX Divergences: May 21 Stock Market Preview
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Tonight’s YouTube video takes a look at SPX, the VIX, NVDA, LLY, and AMD, so check it out if you have a few minutes! The current and prior videos can be viewed by clicking Community at the top of our homepage to find our YouTube channel link.
NVDA is slightly down following its earnings announcement, but not enough to have any confidence that NVDA opens lower tomorrow. We looked at NVDA in depth in yesterday’s newsletter and in Discord today, so we won’t discuss the GEX picture further. Instead, let’s look at what volatility is telling us.
The declining HMA has finally reached the VIX, yet attempts to overcome 18.46 (the current reading) have failed. GEX and option activity doesn’t indicate a lot of interest below 17, so even if we don’t see a VIX spike immediately, odds of the VIX continuing downward appear to be low.
Meanwhile, volume continues to be unusually high at specific higher strikes: We saw 428,000 contracts trade at 65 yesterday, and today we see over 260,000 at the 32 strike and slightly less at the 42.5 strike.
Odds of a move toward 20-25 are still improving, in my view, though it’s unclear how much longer the wait might be.
VVIX might help us narrow down that timeline: We completed the 3rd day out of the last 4 where the VIX and VVIX were negatively correlated. Historical data backs up the likelihood of a VIX spike as we start stacking these negatively correlated days together, especially when we see 5-7 instances fairly close together.
VVIX has a setup to move toward 108 in my view, which may indicate a more volatile VIX as we look ahead at the next few days.
IWM had a big day, reaching the declining HMA and 9 SMA resistance area.
IWM still looks like a favorable dip buy, but IWM is approaching the 285 upper Dealer Cluster zone and we still see most of the volume at lower strikes, so we’re cautious of the possibility that any continuation higher may not last long.
260-270 on the downside continue to look like potential downside targets, if and when we resume the drop.
SPX’s daily chart looks bullish, but the HMA has curled to the downside, and the rally may run into resistance at the 7474 area.
GEX is still concentrated at higher strikes, but we keep seeing big volume at 7000 day after day, which lines up fairly well with the lower Keltner channel.
While momentum continuing to the upside is the highest odds resolution, we could see a drop before continuing the climb. Losing 7400 appears to be key to opening the door to lower prices, with 7200-7300 an initial area of interest.
Last night we looked at QQQ’s weekly chart, which shows the importance of the weekly Keltner channel in stopping the rally (so far), but the daily chart still looks bullish and carries potential to see new highs.
Offsetting factors include the approaching resistance at 720, which is in the upper Dealer Cluster zone, and most of the volume occurring at lower strikes.
Given that NVDA still maintains a possible setup to move toward 240-250, and indices appear to have a little more room to the upside before even testing the HMA resistance (except IWM, which is there), we might see another rally before a drop, so our preference is to react to whichever direction is chosen from here.
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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