Indices Drop To Key Support Ahead Of OpEx
Indices filled Friday’s gap today, with SPX printing a 130-point drop from intraday highs to the low of 7402.61. The VIX enjoyed its post-expiration freedom with a rally to 19 off of the near-tag of the weekly HMA at 15.57. With indices closing above key resistance, and futures up significantly, we enter the final OpEx of Q2 with an element of uncertainty.
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SPX: 7400 Make Or Break
Once SPX lost the 7470 area we highlighted as the key to a quick trip to 7400, it did just that, quickly diving toward that huge GEX zone. The HMA and 9 SMA are also just above, adding technical confluence to the 7400 zone as an important pivot. SPX is shaking the tree this OpEx week, with futures now significantly higher, almost 60 points in the case of ES. A couple of changes worth noting since SPX lost 7500: 7600 GEX is now diminished in size relative to what it was prior to the drop for tomorrow’s expiry, with 7450 and 7500 now appearing to be large areas of potential resistance. The largest net cluster expiring tomorrow is at 7500, which would represent an additional extension higher beyond what futures are indicating. We may have to wait to see 7600 another day.
Key Levels: Bullish over 7450 targeting 7500. Bearish below 7400, targeting 7300-7335.
SPX Looks Uncertain Beyond Tomorrow
Excluding tomorrow’s GEX, two unfortunate (for bulls) GEX clusters stand out as we look to next week: A big negative GEX cluster at 7325 and another of similar size at 7335. Keep in mind that these clusters can shift again, as GEX is dynamic, and that’s why we saw certain shifts in structure this afternoon as the market dropped. GEX improves our odds, but it doesn’t enable maximum trader laziness (pamphlets for my grueling bootcamp featuring a Jim Cramer look alike with a megaphone available upon request). Given the presence of these large negative clusters, we will be mindful of the risk of a gap up tomorrow fading at some point (a risk, not a certainty).
QQQ Drops Deeper Into Negative GEX Territory
QQQ closed with net negative GEX for the 2nd day in a row, with today’s drop landing at the important 720 GEX zone. Gapping up above the GEX resistance at 730 could see a push to 740, while a loss of 717 in particular may see an accelerated move to retest 700 again.
Key levels: Chop zone between 720-730. Bullish to 740 over 730. Bearish to 700 below 717.
IWM: VOlume At Lower Strikes, GEX Less Certain
IWM saw its 3rd day of red in a row, losing the key 290 GEX cluster while maintaining above a cluster of important moving averages. The loss of 290 might matter, but we’re so close to 290 that it’s hard to have any confidence that today’s close signals some sort of regime shift. I lean toward some agreement with the picture we see on SPX: At least an attempt to rebound tomorrow (implying back above 290 for IWM), potentially reaching 295-300, then reassessing the odds of continued upside with at least consideration of downside risk next week.
Key Levels: Bullish above 290 targeting 295-300. Bearish below 288 targeting 280-285.
The VIX: Heading To 20-22 Or Back To 15?
If the spike in futures holds, we’re likely to see the VIX lower in the morning, with an initial test at 17 of interest. Today’s high near 19 brought the VIX to the top of the 2-hour Keltner channel and marked a retest of the daily HMA and 9 SMA, so initial rejection is not surprising. The key will be what happens upon a tag of the 16-17 zone, as we still appear to be in a volatility regime that has a higher floor than times past. GEX seems to back this view, with very little net GEX below 16. If the VIX isn’t likely to make it lower than 16, that gives us two alternatives: The VIX moving sideways around 16 or going back up. Maybe one of these quantum stocks can one day add another alternative: Going back in time to 2007 when the VIX was at 9? I prefer not, actually.
Key Levels: A breach of the HMA near 19 can bring 20 quickly. Above 20 targets 22, then 25. Bearish below 17 targeting 16, then 15.
One last note on the VIX: The 2-hour chart looks topped out, with the lower Keltner still pointing down, and the %b indicator well over 1.0, a reading associated with general topping zones in the past. The 4-hour chart shown below shows some room still allows for a move to 22, matching with one of the larger GEX clusters you see above, but we may see that test of 17 we’ve mentioned first. We have GEX at 17, and 17 is near the HMA on multiple timeframes. Let’s see where we open tomorrow and we’ll include additional data in our decisions once we see the GEX picture after the cash session opens. We hope you’ll join us in Discord tomorrow!
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