Markets Close Below Key Support: Rally Over?
SPX and QQQ gapped down Thursday, IWM opened flat, and DIA actually gapped up. Strength in IWM and DIA continued all day, while SPX and QQQ staged a strong rebound that retested HMA resistance. Possibly due to the contribution of the semis, QQQ failed to fully close the gap left behind. The VIX dropped sharply, which actually may indicate that we are only at the beginning of the next pullback unfolding. Let’s look at some contrarian reasons why the rally may be in trouble, at least for a short period of time.
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SPX: 7600 Still Holding AS Resistance
Today’s gap down to almost 7500 saw a strong rebound attempt by SPX, reaching an intraday high of 7598, essentially testing the HMA area and the large GEX cluster at 7600. The Keltner channels and the MAs look bullish, but we can’t ignore the close below the HMA and 7600, leaving open the possibility of a deeper drop. I view the scenario as unpredictable based strictly on GEX and the chart: GEX increased today, leaning bullish, yet we need to see SPX retake 7600 to technically open the possibility of a move toward 6750.
A drop below 7500 may see 7400 or the lower Dealer Cluster zone (the largest net negative GEX cluster) at 7300, where I might consider new longs across the board.
Key Levels: Bullish above 7600, chop zone between 7525-7600, below 7500 increases odds of 7300-7400.
SPX net GEX as of today’s close still looks bullish overall, coming in at 1.2B. Other indices paint a mixed picture, but I think SPX at least points to the possibility of another attempt to push higher Friday. Crazy enough, today’s rebound still places SPX ahead by 4 points from last Friday’s close, a green week. Danger may certainly lurk just ahead though, and futures are down as I type this.
QQQ: Dragged Down By The Semis (For Once)
QQQ couldn’t quite reach the HMA, and today’s close was right at the important 740 GEX area, showing the largest positive and negative clusters visible on the board. While the close below the HMA is negative, and futures show QQQ at 733, there’s certainly risk to 750 on the upside, depending on how tomorrow unfolds. The status quo based on futures is a continuation lower, especially since QQQ is below 736, with the next target sitting at 727.
Key levels: Bullish above 740 targeting 750, chop between 736-740, and the next lower target is at 727, then 720.
QQQ saw net GEX drop sharply at today’s close, losing almost 1B from yesterday’s closing GEX reading. While it’s worth noting, and it’s certainly not positive, QQQ and SPX tend to be traded by different crowds, with SPX having a heavier institutional weighting. All factors considered, I don’t place a lot of weight on one big negative reading for QQQ, but we’ll want to see how GEX shifts over a period of several days in conjunction with price action.
The Vix: Contrarian Cause For Concern?
The VIX saw what looks a lot like capitulation today, ironically given the gap downs, but GEX didn’t change a lot and volume was still mostly at higher strikes, with 80,000-100,000+ contracts trading at each of the 20, 22, and 25 strikes. One potential interpretation is that a lot of effort went into crushing the VIX, but SPX and QQQ didn’t seem to really get anywhere with that effort.
The 2-hour chart visible below is also concerning. The Keltner channels have flattened out as the VIX appears to be attempting a trend change, and today’s drop brought the VIX back to the lower Keltner channel as the %B indicator dropped below zero. Prior instances of reaching a similar reading saw VIX spikes within a few bars of the reading, potentially meaning we could see a VIX rebound overnight (or over the weekend) to the 17-20 area. Regardless, we don’t see much indication that lower strikes on the VIX are imminent targets.
Key Levels: The VIX holding near the 15 strike leaves open the possibility of a spike. Alternatively, sideways movement for the VIX is possible in coming days. No odds favored targets at lower strikes at the moment.
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