Breaking Down- For Now
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Today’s YouTube video takes a thoughtful approach toward the scenarios we see as being most likely, as well as highlighting certain target levels that might be possible. You can view the short video by clicking here.
We have an interesting week ahead, with monthly VIX options expiring Wednesday premarket, FOMC Wednesday at 2pm ET, a holiday Thursday, and monthly option expiration (OpEx) Friday. I know some traders who refuse to trade OpEx week or certain expiration days in particular, which some might see as a testament to the challenges presented when we face conflicting incentives and other forces playing into where markets move.
In our case, we will trade this week and we’re looking forward to new opportunities that might be presented. Let’s jump straight into SPX, which closed below the key 6000 level following Thursday night’s news of the Iran bombing mission, closing below the Hull moving average and demonstrating a rejection of the big 6000 GEX level we saw breached earlier in the week. For context, SPX still closed higher than the prior Friday, and we’re still barely 2% away from the 6100 level that GEX indicated as a likely target following the 6000 breach to the upside.
SPX saw net GEX drop substantially, though amazingly, overall GEX still reflects a positive leaning neutral bias. My view is that we can now look to the Hull overhead as potential resistance, anywhere from 6032-6037, with downside targets at 5905 and 5800 initially. A breach and close above 6037 will open the possibility of a 6100 tag (again). Nothing would surprise me this week, so we need to be ready with levels in mind as well as flexibility to adjust how/where we will react as new data flows in tomorrow especially.
QQQ still reflects 540 as the visible target, a confluence of the upper Dealer Cluster zone and the upper Keltner channel, though QQQ has the same technical problem we see with SPX: A close below the Hull makes 534 a possible resistance area as of Friday’s close. The lower Dealer Cluster zone at 520 is barely 1% away, a closer target than 534, so we’ll see how tomorrow plays out with futures reflecting modest gains so far.
QQQ did see an even more negative shift than SPX in total net GEX, swinging to the negative side, though still well within a neutral reading using our +/-1B rule of thumb. As a reminder, I view the Hull moving average as an important long/short line in the sand, and you can simply look back and see that most closes above/below the line (when representing a change from the previous trend) tend to see trend changes for at least several days. A word of caution though- Look at May 7 and even May 23, when price moves too far away from the line itself (or if the line isn’t moving sharply in the direction of price), we often see price move back toward the line like a magnet. In this case, even with the Hull flattening out, it wouldn’t be surprising to see a day or two of a sharp rally to retest the line or even briefly exceed it on an intraday basis, and that wouldn’t change the short bias, it would simply be a sell the rip opportunity, in theory.
IWM gave us the cleanest signal Thursday, closing below the Hull despite other indices rallying right to the line or just above the line. IWM’s follow through Friday took it to the middle Keltner channel. IWM has a similar risk that we see with QQQ in that IWM’s price is getting fairly stretched below the Hull, increasing the risk of a rebound back toward the line before continuation lower. The action late last week does validate the repeated volume we saw for at least 2 weeks every day at the 195-200 level, which continued Friday at 200 especially.
IWM’s net total GEX declined 2 out of the prior 3 days before Thursday’s gap down and Friday’s decline in GEX was so sharp that it takes IWM’s GEX back to almost the lows of May. While IWM’s bias has mostly remained negative, we need to see if such a sharp drop in GEX is extreme enough to be a possible contrarian signal. We will likely find out shortly, and my personal bias is that it’s too late to initiate new shorts without a meaningful rebound, so we’ll see what happens.
I do notice that IWM’s 3D graph shows 198 as the largest individual GEX cluster expiring Friday, so maybe we get an early week rebound that fails as the week progresses. At a minimum, the GEX picture is worth monitoring for changes starting tomorrow during the cash session, then we can get a better idea of whether or not this OpEx will carry more risk for bulls or for bears.
If the overnight futures rebound continues, we could see the VIX decline to 19.54-19.75 and then begin a rebound, so we’ll see where indices are in relation to the VIX at that time, if we can reach the mid 19s on the VIX. We’ll look forward to sharing what we’re seeing in Discord tomorrow and we’ll also scan the map for possible opportunities in the morning, which we’ll share in our Livestream session mid-morning. Thanks for joining us!
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