Bullish Divergences Heading Into CPI?
Monday’s newsletter noted SPX’s 3D model showing the large GEX clusters at 7345-55, which appears prescient as early market strength faded into weakness as Tuesday progressed (regressed?). SPX almost reached 7200 at the low of the day, confirming the shift in the volatility regime that occurred Friday. The touch of 7238 also got very close to the 7250 level we mentioned as a possible low for the move lower, and IWM is outperforming. All things considered, indices may be approaching another pivot, this time to the upside.
IWM: Positive Canary In The Coal Mine?
IWM dropped to just under 278, in the range of the 270-280 target zone for a pullback. Additional incremental downside is possible, and perhaps a CPI drop toward 270-275 can conclude in the blink of an eye while still resolving upward. The positive close today was certainly impressive in light of SPX and QQQ not looking so hot, though IWM needs to retake 290 to open the door to the upper Dealer Cluster zone at 300. The close right at the 285 area leaves open the possibility of moves in either direction.
Key Levels: Bullish above 290 with favorable odds to reach 300, bearish below 285, with a retest of 280 or perhaps as low as 270 possible before finding likely support.
VIX: SPiking CLoser To 25, Is It Done?
The GEX picture for the VIX is shifting higher, just as we see the VIX making a higher high today beyond the 23 strike. GEX made clear for some time that 25 was a likely upper target in the event of a spike, and we appear to be approaching that target. Notably, we aren’t seeing GEX grow at higher strikes, and volume has been muted beyond the 30 strike in recent days.
Key Levels: Bullish over 20 targeting the 25 strike, bearish below 20 targeting the 18 strike.
The VIX Maintains Key Levels
Despite the spike and quick fade from over 23 to under 20 for the VIX intraday, the VIX is still maintaining support at key moving averages, including the HMA and the 9-SMA, leaving the door open for a continued move higher. We’re open to the possibility of the VIX reaching 25 before a stronger fade, which just might give indices the fuel they need to retest highs, from a contrarian perspective.
QQQ Is Getting Interesting
Sunday’s newsletter mentioned 686 as the first level we’d watch below 700, and today’s low was 686.37, so we call that a “victory.” Technically, QQQ has gotten ugly enough to look pretty again, but the looming question mark of whether or not the VIX reaches (or exceeds) 25 also accompanies uncertainty regarding QQQ potentially testing levels closer to the lower Keltner at 655. The upper Keltner points sharply higher, though any shot at higher targets requires QQQ to overtake the 734 area to surpass support-turned-resistance HMA and 9-SMA lines.
Key Levels: Bullish above 735, targeting 750+. Bearish below 700, targeting new lows.
SPX: A Good Buy At 7200, A SUper Buy At 7000?
The latest liquidation has been quite fast, wiping out almost 400 points from high to low in a matter of days, which is getting to a point where overlevered bulls might be gone and even cautious bulls may be getting a bit worried. A tag of 7000 is almost 350 points lower, and it’s entirely possible. We also have overhead resistance at 7528. But perhaps this drop has wiped out a lot of the excess bullishness that accompanied the move higher since April? The long tail on Tuesday’s candle suggests as least some participants were eager to buy, and just in front of the CPI report. A loss of 7200 may bring 7000 quickly, but that area is likely now a good support level, according to GEX. We may look to cover our SPY hedge if we see weakness in the morning as SPX approaches an area where further downside may be a good buy or a break of 7530 to the upside.
Key Levels: Overhead resistance at the 7400 GEX level, a close above may lead to 7530 or a retest of highs. Losing 7300 may target 7000.
Ending with a quick look at the 3D model, 7345 and 7355 are still the largest GEX clusters expiring Wednesday, suggesting participants aren’t anticipating deeply negative prices by the close. Let’s keep that in mind, while also remembering that the GEX picture can shift after the cash session open. By then, we’ll have some premarket price action to consider as well, hopefully leading to some nice intraday opportunities.
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