Navigating The End of Q2
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We are back to our regular broadcasting with the evening YouTube videos, so be sure to check out today’s latest update, which has some overlap with the newsletter, but definitely covers different territory as well. You can watch the short video by clicking here.
We’re entering the final 3 trading sessions of the second quarter, and we’re also in the middle of Summer, so I wanted to take a contrasting look at daily and weekly charts for SPX and IWM tonight to try and keep a big picture view in mind. We also have seasonality that is typically bullish into July 4 next week, so we will factor that in as we look at the most likely pathways forward. Don’t be surprised if the next few days feels like another OpEx week, but we could also see some fireworks. I consider the predictability to be quite low, but we can keep levels in mind that might warrant reaction on our part.
Let’s start with SPX’s daily chart, showing SPX still within the upper Dealer Cluster zone and within 1% of the upper Keltner channel. Higher GEX clusters exist up to 6500 and beyond, seemingly far away from the current 6092 close. In short, a lot of this difference may be attributed to timeframe, but why 6500?
This is where the weekly chart comes into play: The SPX weekly upper Keltner is currently at 6414, not far away from 6500. We see meaningful GEX at 6400 as well. You may recall our glance at the 3D graph earlier this week, which showed a lot of those higher strike GEX clusters to be in the September-October range, which makes sense. The daily Keltner channels need time to “catch up” to those GEX clusters, and a continued rise into early Fall may do the trick of bringing the trading range within shouting distance of the 6400-6500 clusters. This sort of trend is not likely to be easy, and we see plenty of signs that a pullback is warranted, including the previously mentioned upper Dealer Cluster zone as well as VIX data currently.
Before we jump into the VIX, let’s also consider IWM, which had a divergent steep decline today to below 212, just above the Hull Moving Average. Such a decline lends itself to a possible rebound tomorrow, in my view, given that we stopped at the Hull. A break below the Hull tomorrow and close below it may be decisive in indicating that the near-term downside may be a bit more than just a one-day event. GEX has grown at 215 and 220 in recent days, so the picture certainly looks more positive overall for IWM, so we need to consider tactical levels and not assume too much of a bias in one direction or another. Continuation higher may be reversed at 215 and especially near 220, just beyond the upper Keltner channel.
The weekly IWM chart shows thick support for IWM in the low 200s, at least according to the big GEX cluster at 200 you can see above as well as the 15 period EMA, the 9 day SMA, and the weekly Hull at 209. As long as any pullback stops at 206 or higher (on a WEEKLY basis), IWM seems to suggest that participants will buy the dip in anticipation of higher targets into the Fall.
Looking at a shorter-term picture for IWM, most of the GEX clusters expiring appear to be positive and between 215-220 between now and July 4, but the negative GEX is heavier toward July 18, including GEX between 200-204. A daily spike to these levels and then weekly recovery above 206 would preserve the bullish picture quite well into October.
The VIX is right at the largest negative GEX cluster at 17, also marking the lower Dealer Cluster zone. Volume today was mostly at higher strikes, especially the 35 strike. While none of this information suggests the VIX spikes to 35 tomorrow, it does seem indicative that the VIX has lower probabilities of declining much more from here, and participants may be more eager to hedge with premiums being far cheaper than just a few days ago.
In summary, we have indices pointing to bullish potential into the Fall, with near-term pullback risks as we proceed into July. For now, we’ll be considering any pullback as an opportunity to buy for a rally as the year goes on.
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