Futures Dip (As Anticipated)
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Thursday evenings newsletter couldn’t have been more clear, titled “Preparing For A Dip Buy,” and it looks like Friday’s small dip is getting…”Dippy-er” as futures are deep in the red. Friday also saw another VIX:VVIX divergence, with the VIX red while VVIX was green, another piece of evidence to add to the pile of justifications for some sort of pullback. To add to our checklist, GOOGL had a nice move higher Friday despite the surrounding sea of red, which we also indicated as a possibility with good odds. So now what do we do with the ongoing dip? We discuss an overall bullish picture while discussing how we are viewing this dip in our latest YouTube video, which you can watch by clicking here.
Glancing at the chart above, we see SPX is dropping from the upper daily Keltner channel, quite “textbook” despite indices sometimes overshooting these indicators. You can see previous times just since last August where we generally turned lower at the upper channel, but sometimes spent days at or just over the top. The dip in futures, if it holds, appears to be set for an open somewhere close to the pink Hull moving average at 6039. No telling if futures stay at the current level or not, but that’s a visual of where things stand at the moment. 5955 appears to be the next target I’ll be watching, the middle Keltner channel.
Gamma (GEX) dropped off Friday as well, still leaning positive but dramatically lower from the extreme levels seen Thursday. Once again, we highlighted that historical extremes in GEX can accompany reversals, and that appears to be what we saw last week.
Let’s not spend too much time on the Dealer Cluster zones below, because they will likely change tomorrow given Friday’s big option expiration, but note that even Friday’s levels gave room down to almost the 6000 area where we expect dealers might become buyers/ We saw some volume at 6000 that was notable as well (the light blue bar, representing Friday’s total volume), so perhaps that’s an area to watch, though we will give larger weighting to what GEX tells us tomorrow.
One area where I was wrong was anticipating QQQ to play “catch-up” Friday, when instead it’s actually beginning its decline from a position of weakness relative to SPX. As long as QQQ holds the 520 area, an area supported by GEX as a dealer cluster zone as well as the middle Keltner channel, I see that higher move toward 535-540 as having good odds, so we’ll be watching that. At the moment, futures indicate QQQ to be right around that area, so either this dip is going to end relatively soon, or we are going lower, to state the obvious. We don’t know the future, but we have had overall success following what appears to be the most probable pathways.
We noted that VVIX was green while VIX was red Friday, but one thing to note is that the VIX is still holding the 4-hour Hull, maintaining a long volatility signal for the last 3 bars. The upper Keltner on the 4-hour chart is at 17.31, and the channels are angled downward, which doesn’t look very positive for volatility. As we enter the busiest part of the earnings season, this can easily be a bear trap, so we need to keep our eyes out for key developments with the GEX picture and whatever indicators you’ve found to work for you.
One last point for the VIX- we did see outsized volume at the 22 strike Friday, and we’re in a lower Dealer Cluster zone, so a bounce from here is not surprising in the least. The question is how far and how long? I’ll be watching the charts and the GEX picture for both the VIX and indices once we see the VIX between 17-22, which could be tomorrow.
We noted that AAPL had really fallen a lot in a Newtonian lesson on gravity, and that perhaps AAPL would have its turn to lead the indices higher given the beatdown. We did see an immediate bounce to the 227 area, which was anticipated, but weakness ensued Friday, perhaps a preview to tonight’s weakness. Note that AAPL hasn’t yet made a new low, but that might be coming at this point.
AAPL’s GEX picture has shifted lower on the buy side, with 210 marking the G2 Dealer Cluster. Interestingly, note that the upper G1 area has not come down, it’s still at 250. The next data point also has my attention.
Despite Friday’s weakness, look at how AAPL’s GEX actually increased, quite a paradox in the face of the price dropping as well as the G2 cluster lowering. I would call that a positive divergence as large players potentially position for higher prices down the road.
To summarize, we’re seeing a market dip unfold, and it might get uglier in the short term. But unless the GEX picture shifts dramatically, we are seeing an opportunity to buy the dip given meaningful GEX at higher strikes for the major indices, and AAPL (as a large component of those indices) might be a leader to watch this time around.
We hope you’ll join us in Discord tomorrow and we’ll see what GEX is telling us!
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