SPX Painted Red: Time For A Pullback? May 5 Stock Market Preview
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In last night’s newsletter, we mentioned a few factors that seemed to favor a pullback soon, even as the daily charts are looking bullish. Today barely counts as a pullback, but we do have a red candle on QQQ, and we did close below the HMA.
Alright, so maybe we have the beginning of some sort of pullback. Time will tell. I believe it would be quite unusual to see QQQ ride above the upper Keltner channel for a long time, particularly in light of how stretched the weekly chart looks, but everything about this rally has been unusual, so keep an open mind.
Positive GEX expiring Friday still outweights negative GEX for QQQ, though the largest positive clusters aren’t very far away, with 675 and 680 representing the two large positive clusters visible to the right of the graph.
I do find the large negative cluster at 645 expiring May 8 interesting, especially since it’s one of the strikes we noted in last night’s newsletter.
Judging by the current picture for this week (which is always subject to potential change), upside appears limited for QQQ while risk is skewed to the downside, at least in terms of the magnitude of the drop. I mentioned liking 635-645, with interest in the middle Keltner channel approaching 640, so maybe we have a shot. It would be a big move, but we moved up quickly in a big way too, so don’t doubt the potential power of physics on the swinging pendulum.
SPX gave us that “special” candle Friday, and today saw follow through more meaningfully than QQQ, dropping back within the Keltners, though still above the 9 SMA. Being back within the channel is within my most minimal expectations, and dropping below the 9 SMA may open the door to a quick drop to 7000.
Speaking of 7000, SPX is still seeing big daily volume at 7000, something we’ve observed for days on end, dwarfing other strikes (excluding 0 DTE GEX and volume).
SPX’s GEX picture shows 7300-7400 as the upper Dealer Cluster zone now, though a lot of that higher GEX is spread across a variety of expirations from May 15 through June, so we don’t have a high-conviction single target date by which we expect that zone to be reached.
SPX GEX has trended sideways after the sharp drop in mid-April, but today saw another drop in net GEX, getting uncomfortably close to the zero line again. The current reading is well within neutral territory, so not the most bullish look at the moment.
The VIX 4- hour chart doesn’t look bullish, with most moving averages and indicators pointing slightly lower, but the HMA has turned up and we see the VIX holding above that line.
Based on the action of volatility and where it held today, I lean toward a short-term VIX spike that ultimately gets crushed to lower lows, possibly targeting the 15 area.
Zooming out to the daily chart, the gap up for the VIX today reclaimed the HMA, similar to what we see on the 4-hour chart. The GEX picture gives us some strikes to watch that have confluence with other indicators: A possible move toward VIX 20, with 25 potentially coming up quickly if the VIX holds above 20, then potentially a move back toward the current zone, with subsequent risk lower.
The current GEX picture doesn’t suggest a likelihood of reaching 15 imminently, so keep that in mind as I mention an eventual target that might be in that zone. First things first, let’s see if we do indeed have the beginning of a modest pullback afoot.
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