Pushing On A String Into CPI
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Before we jump into a toxic (yet profitable) concoction of comedy and market positioning jibberish, let me share a link to today’s YouTube video, which you can view by clicking here. We always try to share related info that has some overlap, but also additive data and different ideas.
GEX (Gamma Exposure, for the acronymically challenged) saw some subtle shifts today as indices edge toward their upper Keltner channels and some entered their upper Dealer Cluster zones. We’ll take a look at SPX, QQQ, and IWM, but first let’s take the pulse of the VIX, which has been on life support lately.
Notice that the close below the Hull (the yellow line on our chart below) on May 27 was a great indicator of a downtrend that persisted all the way until today, and perhaps beyond, though I’m not convinced it will last long. With the Hull continuing its descent while GEX levels have actually remained fairly constant, we’re now at a point where the VIX low was 3 days ago (today was within 0.03 of that though), and the Hull is about to cross under the VIX, barring a huge drop in volatility tomorrow. We even saw an attempt to go over the Hull today, rejected by that pesky villain, the zero gamma line. Volume remains relatively elevated at higher strikes, and maybe the last CPI report (with all of its yawns and passive groans) helped to hypnotize participants into a complacent trance, creating a disconnect between real-life volatility risk and positioning for a low VIX (but not lower than 16?).
I like to consult the 2-hour VIX chart because it seems to be good guide for me absent a huge vol spike (not every ticker is consistent on lower timeframes). Even with the last 2-hour bar heading higher, the VIX is still stuck below the Hull on a 2-hour basis, which keeps my bias to the downside. VIX 16 would match the lower Keltner channel on the 2-hour chart as well as the last sizable GEX cluster visible, leading me to a speculative hypothesis that we might drop to 16 and then see a sharp rebound (or a slower beginning to a larger rebound) in the VIX immediately after CPI. I can’t judge timing as well using these indicators, so I have greater confidence in the levels themselves, but I’m speculating that CPI could see a whipsaw since whipsaws are fairly common when important data is released.
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Now for the lightning rounds on SPX, QQQ, and IWM: SPX saw perhaps the most noteworthy shift in GEX, a shift lower for the upper Dealer Cluster zone to 6040, approximately where we closed. We still see sizable GEX at 6100 and we still haven’t tagged the upper Keltner channel at 6076, so I still give the edge toward a tag of 6100. Though I don’t include the chart in the newsletter, I’ll also give (dis)honorable mention to futures in the form of ES, which shows a more bullish setup with the upper Keltner at almost 6150. Given that ES can hit this level overnight or premarket, I don’t necessarily think SPX goes straight to 6140, we may see a reversal before the cash session even opens, but it’s entirely possible SPX surpasses the upper Keltner channel briefly. That said, the shift lower in the upper Dealer Cluster is cautionary, particularly in light of IWM reaching its target.
QQQ is within 1% of the 540 target we noted earlier, also matching with the upper Keltner channel. QQQ actually dipped below the Hull today (the yellow line), and I consider a close below the Hull to be a “deal breaker” for bulls, a signal of a short term trend change. The point being that we were close to invalidating the uptrend in the short run, though I wouldn’t expect a definitive move right before CPI anyway. All eyes are on tomorrow morning (or maybe just all of my eyes, which means two eyes, last I checked).
IWM finally saw what I view as capitulation amongst all of the bears that were waiting for 200, so that bunch of Costanzas (not to be confused with our great Discord member named Costanza) might have finally marked a short-term top for IWM. IWM reached the upper Dealer Cluster at 215, rejected the test of 215, and closed below, printing a doji or indecision candle. I’d prefer the tag of 216 to reach the upper Keltner, but putting aside my OCD, I think we can call it “close enough.” IWM has often led the indices up and down, so I consider this a warning that a pullback may be close. 220 saw GEX grow recently, which is a positive, so perhaps a drop will be short-lived, but we’ll make that call when we have more information. For now, we’re planning to react to the initial move tomorrow to take advantage of opportunities that may arise.
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