Preparing For A Dip Buy
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Early weakness in some indices evolved into uniform bullishness into the close, with IWM quickly catching up to QQQ , DIA, and SPX’s strength. We mentioned yesterday that IWM appeared to show good odds of reaching 230 or higher this week, despite the coinciding evidence that a dip might be close to happening beyond that move higher. We also discuss IWM (and a lot more) in today’s YouTube video, which we invite you to watch by clicking here. IWM may still reach 234, and we see the Hull easily halted today’s decline, which didn’t even quite reach the indicator. The Keltners are still pointing sideways to lower, so the probability still stands of a pullback soon.
The market is currently reminding me a lot of the situation we saw in December, where SPX ended up topping before QQQ, and QQQ was the last to move higher. QQQ was also the last to make a low recently. A quick glance at the Keltner channels shows SPX to already be up against the upper daily Keltner channel, while QQQ has some room to go to reach that same spot.
Given the status of the Hull (the pink line), SPX could drop all the way down to the 6000 area and it would still maintain the setup for another push higher. One possibility (if the market is going to continue pushing higher Friday) is SPX staying relatively flat while QQQ heads toward its upper Keltner channel, which isn’t unprecedented.
SPX has already seen gamma (GEX) climb back toward recent extreme highs, which is a potential contrarian signal as well, the idea being that extreme GEX indicates participants may be a bit too lopsided toward the long side, in this case.
To visualize QQQ’s chart relative to SPX, the daily Keltner channels reveal another 7+ points to reach the upper Keltner, while SPX is already at that same relative indicator. The Dow (DIA) is stretched above the channel, which is quite overbought at the moment.
QQQ’s GEX picture also backs another push higher as having good odds, with large GEX clustered around 540, the upper Dealer Cluster zone. Participants have shifted in such a way that the lower Dealer Cluster zone has moved up to the point where this seemingly elevated area is appearing to be a spot where dealers might actually be buyers.
Looking at individual major components of QQQ, I can understand a possible rationale separate from QQQ’s GEX and Keltners that makes another spike more likely, namely that companies like GOOGL have been consolidating sideways or down in a sort of rotation, with other members of FATMAN-G (Facebook/Meta, AMZN, TSLA, MSFT, AAPL, NFLX, GOOGL) taking the lead. It’s possible that tomorrow or another day(s) next week will see rotation to some of these tickers with the impact of boosting major indices.
AAPL is another example, having had a fairly significant decline even until yesterday, barely showing any signs of rebound until today. AAPL could be an early warning sign for tech in general, but more often than not, we see weakness amongst leaders as simply buying opportunities.
GEX shows a large cluster at 250, 230, and down to 228, still higher than the current price.
Friday’s largest GEX clusters are at 225, 228, and we even see some GEX at 230, all on the positive side. We may see some sort of downward consolidation tomorrow and continuation higher next week, but risk/reward seems to be tilted overall toward the positive side.
We hope you’ll join us in Discord tomorrow and we’ll see what GEX is telling us!
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