Cracks Appearing In SPX?
Today’s close on SPX was the first close below the HMA following a close above the HMA since May 15, the onset of the last modest pullback, lasting three days. Today’s weakness also follows the 3B extreme positive GEX reading we saw two days ago. All things considered, we may have the best shot in a couple of weeks to see a “healthy” pullback.
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SPX: Only The 9 SMA Can Save Bulls Now!
At least on my chart, the 9 SMA at 7540.81 is the last technical support preventing a trip to the weekly HMA at 7522, with the large GEX zone at 7500 just below. A move to 7400 is possible below 7500. I circled the last two times we saw SPX cross under the HMA after closing above the HMA the day prior, and in each case, such a daily close marked the onset of modest consolidations lasting 3-4 days. Early May was the exception, with the close below the line being negated by a gap up back above the line the next day, spurring another strong leg of the ongoing rally.
Barring a surprise, AVGO earnings should seal the deal for at least a lower open Thursday, so let’s see how it plays out. As usual, we’ll look at 0 DTE GEX right after the cash session opens to solidify the initial picture for how tomorrow might play out.
Key Levels: Bullish above 7596, chop zone between 7540-7595, bearish to 7500-7520 initially below 7540.
Revisiting SPX’s Extreme Positive GEX Reading
It was just two days ago that we saw SPX close with positive GEX over 3B, which we noted as an extreme reading compared to GEX readings over the past 52 weeks. We also pointed out that the last time we saw such a reading, we began the mid-May pullback. Today’s red candle was delayed by a day, with yesterday ending very modestly positive, but two days is certainly within the window of when we would expect a contrarian decline based on too many passengers crowding onto one side of the boat. Today’s GEX saw a deeper drop, now in neutral territory.
QQQ: Closed Above The HMA, But Does It Matter?
Technically, QQQ did not close below the key HMA that SPX lost, but I typically give the benefit of the doubt to SPX over QQQ. AVGO’s after hours drop seems to validate this approach as it’s apparently dragging down everything with it. QQQ’s upper Dealer Cluster zone and the largest net positive GEX cluster is at 750, and today’s high almost hit 749, so QQQ made it close enough to remove any surprise I might have otherwise experienced if we see a meaningful drop right here.
That said, QQQ still has some distance between today’s close and the 9 SMA at 733, and every 5 points appears to show enough GEX to leave us unsure how much downside we’ll get out of QQQ from here. I think if we lose the weekly HMA at 727, we may see 700, and that’s likely going to be a good dip to buy in my opinion, if there’s anyone left to buy the dip at that point that isn’t already all-in long (besides me). If I’m the only one, well, I might feel a bit lonely, at which point I’ll go swim with my emotional support trout.
Key levels: Bullish above 743, chop between 733-743, buckle up for potential deeper selling below 730.
AVGO: Ruining The Party?
The problem with high expectations is evident with AVGO’s recent pattern of buy the rumor of the rumor, buy the rumor, and then sell the news. After hours indications show AVGO just below the zero gamma level at 418, with recent trades in the 414-415 area. If the selling continues into the open, we may be looking at the HMA and large GEX at 450 as support-turned-resistance, with 400 as a possible initial downside target. What impact will this have on SOX and SMH? It’s hard to say, we may see the game of musical chairs continue tomorrow with a new favorite, unless today was the day when only one chair remained. Ultimately, SMH can touch the 600-614 zone and still maintain this feverish move higher, so we’ll withhold judgment on the rally itself being over.
Key levels: AVGO can still touch 500 above 451, current action suggests 450 is resistance, 380-400 is a possible downside target zone.
IWM: Losing Support, Below Resistance
Not only has IWM lost the HMA, but it’s also below the 9 SMA and the key 290 GEX cluster, raising the odds of a move toward 280. The largest net GEX cluster expiring tomorrow is actually at 284, so that’s another possible area to watch. IWM didn’t get nearly as overbought as SPX and QQQ in my opinion, so it will be interesting to see if the downside ends up being greater or lesser (as a percentage) relative to the other major US indices. In my view, anywhere between 270-280 may be worth new long positions with 300 as a potential upside target.
Key Levels: Retaking the 290 GEX area brings us back to focusing on 300 as an upside target. Remaining below 290 targets the 280 lower Dealer Cluster zone.
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