Early Divergences Competing With Extreme Upside Targets
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The melt-up continued today, with SPX gapping up and running even higher to close up .80%. SPX is within 23 points of the upper Keltner channel and we’re at the doorstep of the upper Dealer Cluster zone, which has shifted higher over the last two days as we aim for something in between the Keltner at 6164 and the next big GEX cluster at 6200. We address some of the tactical levels we’re watching in today’s YouTube video, which you can watch the short video by clicking here. This includes mention of QQQ, the VIX, WMT, and more.
Yesterday’s newsletter (first time subscribers can see past issues by visiting www.geeksoffinance.com/newsletter) covered a discussion of the daily versus weekly charts and a pathway to higher prices toward the Fall, but today, let’s hone in a little more on the idea of a shorter term pullback, with emphasis on some early warning signs that might make sense to monitor.
Other than the obvious upper Dealer Cluster, where we expect dealers to become potential sellers, SPX is right at the edge of the upper Keltner channel and its price is stretched a bit far above the Hull Moving Average (the yellow line), so we have some technical reasons to expect a drop very soon. Conservatively, we should retest the Hull at 6053, but below 6100, the next noticeable GEX cluster is at 6000. The lower Keltner channel is at 5800 and rising, so presumably we will see the lower Keltner closer to 5900 by the 4th, if the current Keltner trajectory is maintained. The larger picture positive is that SPX is in a strong uptrend with the Keltner channels also pointing higher. This (combined with the growth in positive GEX all the way up to 6500+) clearly shows that any pullback should (for now) be viewed as a “buy the dip” opportunity with higher objectives into the Fall.
Some of the more interesting observations made today pertain to the 3D graph you see above. Each spike represents a single GEX cluster (not net GEX), with the positive GEX clusters shown above the flat surface and negative GEX clusters appearing below the surface. While the largest positive clusters without offsetting single negative clusters are mostly situated at either this Friday or Monday, including clusters ranging from 6100-6200, We actually don’t see many positive GEX clusters at all looking at Friday July 3. We do see noteworthy negative GEX clusters at 5925 and 5950 expiring July 3. Despite normal bullish seasonality into July 4, could we see an inversion this year, with a high this week and a drop into July 3? GEX seems to suggest that it’s certainly possible.
QQQ has a similar message to SPX, with price being extended above the Hull by 10 points, and the upper Dealer Cluster extending from the current 545-550 area. GEX is relatively muted above 550, with 540 net GEX being twice as large as 555, for relative comparison. An interesting point about QQQ (and SPX) today is that QQQ did make a new all-time high, while IWM is comically off of its early 2025 highs by almost 30 points, nearly 15%. I looked up “divergence” in a dusty (recently dusty, don’t criticize my analogy!) book called a dictionary and I found a chart of IWM and QQQ next to each other. Either IWM is the best buy amongst world indices, it will stay divergent and doesn’t matter, or QQQ will drop, take your pick (or flip your 3-sided coin).
Speaking of IWM, our bullish-leaning suspicions of IWM rebounding today were proven correct, with the drop to the Hull yesterday being me with a nice rebound to a higher high today, also closing within the upper Dealer Cluster zone at 215. We saw a lot of negative GEX disappear today, so perhaps shorts finally capitulated. Last time we saw this, it was a topping process for IWM, though this time around I do think we have potential to reach 220, given the Keltner channels and the presence of sufficient GEX at 220 to serve as a possible magnet. Such a move could be a brief spike, or we could reverse from this 215 zone, so it’s certainly a spot to exercise caution, in our view.
IWM shows very little GEX between the current price and 200, though we do see some GEX between 201-205 worth noting. As shown on the 3D graph below, 204 (and most other negative clusters worth watching) expire in mid-July, so we need to be on watch for any potential weakness next week to extend toward the July OpEx, possibly setting the stage for a rally into early Fall.
IWM net GEX swung into barely positive territory, which marked a top last time around, though this time may be different. As mentioned, I wouldn’t be surprised by a trip to 220, but too many other indicators and signals support a pullback soon, so I doubt any spike to 220 or beyond lasts without a pullback somewhere along the way.
Lastly, we also have the VIX, which reached 16.11 today, seeing a nice wick back up and showing early signs of green shoots. The lower Keltner channel on the 2-hour and 4-hour continues to point toward 16 or just below as a possibility, though I wouldn’t be surprised if such a dip was fairly brief, given the importance of 16-17 in recent months. The Hull is below the current VIX level, but it’s far enough below that we might drop to revisit the line before the VIX sees a more sustained bounce. We’ll want to watch the indicators on the VIX as well as further shifts in the GEX picture.
Interesting times are ahead and we will do our best to flexibly update our views as the data shifts, and of course we’ll share those thoughts here and in Discord.
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