OpEx Capitulation…Of Da Bears
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Today’s YouTube video can be viewed by clicking here. We take a look at major indices including IWM, which we don’t discuss in the newsletter tonight, so check it out if you have a few minutes!
While we’ve had the conditions in place for a few days to justify a pullback, the OpEx premium kill machine has been turned on, with headlines able to report incremental new highs despite the zoomed-out view that we’re mostly sideways since 7/3, even appearing to be on the verge of breaking down yesterday. The day-to-day (and even intraday) red-green-red-green pattern since just before VIX expiration this week has certainly enriched option sellers on both sides by betting on a lack of follow through in either direction. Since it’s boring to discuss the possibility of another chopfest day tomorrow (though not a possibility to be ignored), and we still believe a pullback can happen imminently, let’s evaluate a potential upside move how that might resolve. No, we have no idea what happens the next few days, but hey, at least we can come up with a gameplan for either up/down/sideways, right?
We’ve been noting the growth in positive GEX at higher strikes for SPX, an undeniably bullish development. We’ve also highlighted the potential timing of such as move as being later than the present, given the expiration dates for the largest concentrations of GEX at those levels as well as certain technical indicators being so far off that anything short of a historic parabolic blow-off top likely requires more time.
SPX pushed right into the Hull Moving Average, closing fewer than 2 points above the Hull and right at the upper Keltner channel and upper Dealer Cluster zone. A push further into the box (and over the top of the Keltner) is possible in the short run. I refer back to the 7/3 top, which made it 62 points above the upper Keltner channel. Breakout, right? Well, it’s not common to stray too far from the upper Keltner, and sadly for the breakout crew, we saw price move sideways for a week, peek a little higher (also peaking a little higher), then consolidate sideways again, giving trend traders half a month of nothing.
Same story for QQQ below, and the GEX picture appears less convincing, though I do give SPX more predictive credit in general.565 is less than 1% away, sure, an overshoot of the top Keltner can certainly reach that point. We see the lower Keltner approaching 530 and it appears we can close a gap if we see a decline to 535, so that’s my physician prescribed “healthy pullback” target, if we ever see downside again in my lifetime (I always exaggerate when the short term feels like forever). bulls wanting higher prices will want some sort of pullback, because a true blow-off may introduce some bearish uncertainty, but we’ll save that paradox for another day.
The VIX closed below the daily Hull, and even though we saw over 200M negative GEX expire Wednesday, bringing net GEX less negative, we still see the same focus on VIX 16-17. The Hull is still pointing higher, so as long as the VIX doesn’t stray to far south from the 16.50 area, we could see this trend of a choppy but eventually higher VIX continue as we enter next week.
A graphical view of the current VIX GEX situation: Extremely low implied volatility (a contrarian signal for volatility), an improved negative GEX picture that is almost back to flat since the monthly VIX options expired Wednesday, zero gamma at 18, and daily volume at higher strikes. Protection appears to be fairly cheap right now, which is usually when no one wants it..Maybe it’s time to start looking!
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