Deal Or No Deal? SPX Doesn’t Care! May 26 Stock Market Preview

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Market On A Mission

Indices continue moving higher off of Tuesday’s lows, with SPX and IWM making lower highs as of Friday while DIA and QQQ made new highs (barely, in the case of QQQ, which then closed below highs). The VIX has failed to make a new low compared to May 1, though movement in the futures market (and some other indicators we’ll look at shortly) point to the possibility of at least a brief move lower before a rebound in volatility becomes more likely.

SPX closed just above the daily HMA, leaving the space between 7575 and the upper Keltner at 7588 more likely to be filled. Doing so would bring a new high to SPX. Futures action lends strongly toward a test of the upper Keltner channel, barring a Monday night surprise and reversal in futures.

The overall bias remains higher and my indicators back the general trend, though we do see GEX drop off after the 7600 zone. In fact, there’s more net GEX at 7450 than at 7700, suggesting that the market may soon see another breather, even if it’s nothing more than the 2-3% drop we saw culminating last week. Non-0 DTE daily option volume also remains highest at 7000, a theme we’ve noticed for some time.

One Step At A Time..

Tactical triggers supercede overall bullish/bearish observations for us, because reaching a specific trigger is the best present-time confirmation of what is actually happening. In the case of the current picture, the momentum appears to be a move to 7600, which appears to be a good countertrend area for a pullback, deep within the upper Dealer Cluster zone. Losing 7467 favors a move to 7400, which may simply be a reset area for another push higher. Losing 7400 is the “danger zone” where a trip to 7000 jumps to the forefront in terms of risks to be aware of.

QQQ: Retesting The Upper Weekly Channel

QQQ made new highs last week, largely thanks to the bonkers semiconductors, though both closed below highs. The move higher brought QQQ right back to the upper weekly Keltner channel, a good guidepoint for reversals, looking back at prior instances of reaching the upper channel, and the near-precise location of the reversal experienced most recently.

Looking at the daily chart, QQQ closed just below the HMA, though QQQ will presumably follow SPX toward the upper channel at 729-730 if the move higher in futures holds until Tuesday morning.

Regardless of the chart timeframe, GEX is concentrated all the way up to 750, indicating a buy-the-dip environment in the event of a near-term pullback.

Tactically, a move higher than 719 increases the odds of reaching 730, at which point a countertrend short may come into play, or a loss of 719 may target either 710 or 700, both showing significant gross GEX positions. Only 700 is showing a significant net GEX position between the two, but when GEX is positive, we're not looking at net GEX at lower strikes for primary support areas like we are at higher strikes for the next targets. Gross GEX clusters (not toggled on the chart below) are valuable considerations when looking at support areas, net GEX is more important when looking at targets in the direction of the GEX bias, in our view.

IWM: Bullish to 300, But What’s The Timing?

IWM saw a nice move higher last week, though IWM hasn’t quite made a new high just yet. GEX suggests that will happen, but at the current moment, IWM looks a bit too stretched above the declining HMA. The stretch can get “stretchier,” but that will only increase my conviction in a quick snapback toward the HMA. Friday’s volume was heavy at 290 (maybe Tuesday’s target?) and at 270, with 270 seeing a lot of interest virtually all week last week.

IWM: Net GEX As A Contrarian Indication?

An interesting data point I’ll note regarding IWM: Crossovers into positive territory for IWM have often marked tops, sometimes the exact day of the positive reading. Looking at the points circled below, May 6 was a GEX top and market top, May 11 was a GEX top and market top, and May 14 was a GEX high and market top. The additional day after the positive reading on May 13 didn’t result in a meaningful additional move higher for markets, same for May 5-6.

So here we are again, IWM almost above water in terms of net GEX, how many gasps of air will it get before getting pushed back underwater? If Tuesday sees a push higher for indices, that might be what IWM needs to print that positive reading and “seal the deal” for IWM’s next pullback, even if it’s a modest one.

The VIX: Stuck In No-Man’s Land

The VIX made a low at 16.46 Friday, 2 pennies higher than the May 1 low. So the VIX is meandering sideways, essentially. The GEX picture is almost nonexistent below 16, and volume below 16 is also sparse. Every day of the week, we’ve seen huge relative volume at higher strikes ranging from 35-65, and Friday’s volume at 45 expires Wednesday, interestingly. Just a nervous Nellie grabbing cheap hedges before the 3-day weekend? Maybe.

The VIX remains below the weekly HMA at 18.4, with a failed retest at the weekly VIX high of 18.9, so the timing of a “real” pullback may be more likely if we can see the VIX get back above the low 18s, which might target anywhere from 20-25.

The 4-hour chart for the VIX looks like we might see 16 before we see 20, but that’s not too far away, at this point. I think caution is warranted on the part of feverish bulls looking for never-ending continuation of the rally because we already see the lower study (%B 20,2) reflecting a reading of almost 0.0 again, which has been a consistent bottom marker for the VIX, at least within a few bars (timing bars, not the locations where bears go to drown their sorrows by the pint).

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