Volatility Is Back(ish?)!
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Yesterday’s newsletter started with a call for a VIX spike back to 20+, which happened faster than I thought it would, reaching almost 21 today. We posted another short YouTube video that you can watch via this link where we address the S&P, the VIX, and some commodities as well, so give it a quick viewing. We note in the video that we didn’t see the elevated volume at higher strikes on the VIX today like we saw yesterday, so maybe we get another choppy pullback day for volatility as the market attempts to rebound. A gap down tomorrow would potentially get us close to the middle Keltner channel for QQQ and SPY (IWM already touched it) and set the stage for a possible rebound attempt, though that’s admittedly only one of several possibilities. We’ve done just fine waiting for the market to open and seeing what gamma (GEX) tells us at that point.
The beginning of each month is known for setting what some traders call the “opening range,” basically a set of levels that seem to have importance as the month goes on. Lately, we’ve seen important lows made early in the month, though election year seasonality calls for an October low later in the month, so we need to stay on our toes and interpret the data that’s directly in front of us instead of taking a myopic view toward historical data points that might lack context.
VIX GEX Levels: www.geeksoffinance.com
SPX has a concerning pattern in my view, with broadening intraday ranges and lower highs/lower lows printed recently. We are also below the Hull Moving Average, something we’ve noted ever since price crossed over to the underside of the indicator as a concern for bulls. The Keltners are bullish overall, but we are still viewing 5600-5620 as a likely “first stop” target if we stay below 5776.
With the big end of month/end of quarter expiration behind us, a lot of positive GEX was taken with it, leaving SPX (and especially SPY) with an Ozempic-sized loss of positive GEX, and no, that’s not healthy.
Leave it up to SPX to be the unemotional adult in the room though, still maintaining a slightly positive total GEX level within our neutral zone.
SPX Historical GEX: www.geeksoffinance.com
We mentioned that the VIX once again reached the upper 2-hour Keltner channel, and SPX also reached a Dealer Cluster Zone that ranges from 5625-5710, a wide range that allows for a continued decline in the context of potentially seeing some buying or short covering in this area as well, even if it’s only a short-term event.
SPY’s chart obviously looks virtually the same as SPX, but today is a good example of how different SPY and SPX GEX can be, which stems from a number of factors, one of which is the outsized influence of retail and other traders on SPY that don’t trade SPX. SPY gave us an overly emotional straight line drop to -1.5B on total GEX. Is this too far, too fast, allowing for a short-term rebound? Or is SPY now leading SPX to the downside? I remain skeptical that SPY is now the clearer crystal ball, but I am open-minded to some sort of shift.
SPY Historical GEX: www.geeksoffinance.com
One last note on QQQ, which looks fairly similar to SPY and SPX, but less bullish: We still have a little room below to reach that middle Keltner channel, 473-474 would do the trick, or an overshoot that recovers back over the line. Otherwise, it’s also below the Hull, so a rebound even to that 490 area is still a bounce I might consider shorting.
QQQ is likely getting close to a point where a rebound is due, if the current Dealer Cluster zone holds. In coming days, we will see GEX shift in a way that hopefully gives us some insight as to where we’re headed.
QQQ GEX Levels: www.geeksoffinance.com
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We recently posted a YouTube video and we have many short videos for you to review where we cover a variety of predictions and educational topics.
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