Upside Targets Met..Now What?
We posted a YouTube video today, which you can watch by clicking here. We discuss SPX more in depth than we do in today’s newsletter, and we also cover some individual tickers not discussed here, so you might want to check it out if you have a few short minutes (short in terms of time, not positioning).
The move higher for SPX has been powerful since the gap above the Hull Moving Average after June 23, leading us straight into the upper Dealer Cluster zone and above the daily upper Keltner channel. The Keltners are angled upward and to the right, a bullish trajectory, though the cautionary tale here is that the odds are low that we continue up in a straight line without any pullback. A retest of even a bear crumbs level like 6000 (which we were at a mere 5 trading sessions ago) would be over 3%, and dealer positioning opens the possibility of 5850-5900 or lower, so we need to maintain awareness of the pain that is possible even without violating the uptrend. Volume and GEX are notable at 6000 today as well.
QQQ is perhaps the brightest red flag today, briefly breaking below the Hull intraday before regaining it and closing about 1 point above the Hull, now below the big 550 GEX cluster after today’s -.84% decline. It’s noteworthy that we see more GEX above 550 than we saw last week, with large clusters at 560 and 570, but a closer look at the 3D map shows the net GEX at these higher levels to be comprised of many disparate (not to be confused with desperate) clusters spread across many expiration dates between now and the end of September. In other words, yes, it’s bullish that we see GEX at 560-570, but participants haven’t nailed down an agreed upon expiration date where the highest conviction exists, but we have confidence that those targets are valid at least looking into the end of September. What happens between now and then?
Of course, the implied answer to the question is that we might see a pullback imminently, and (as mentioned yesterday) GEX may be signaling this likelihood as well, with 3 days in a row of declining positive GEX, now within a put option’s throw away (a relevant remake of the old saying “a stone’s throw away”) of being in negative GEX territory.
In completely opposite territory, IWM fulfilled our forewarned target of 220, reaching 220.50 before reversing back down to 218. This beautiful fulfillment of reaching the upper Keltner channel+upper Dealer Cluster zone completes the trifecta of SPX, QQQ, and IWM all reaching both of those objectives (okay, we can call it a quartet or foursome and include DIA). The Keltners look bullish, similar to other indices, and we also see a positive shift in IWM GEX toward higher targets. The immediate issue still resides in the fact that we’ve reached the upper Keltner and upper Dealer Cluster and rejected, which is to be expected in most instances.
Now the question is, what happens next? Given the prior volatility leading into the April low, and the smooth trajectory higher that has equalled what most would consider a sizable annual return- I think we need to be open minded that the next pullback (prior to new highs) may scare newly re-converted bulls (you know, the Cramer types) with a drop a bit deeper than anyone expects. At least that would be the pathway of maximum pain, wouldn’t it?
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