Markets Meet CPI: VIX Crush Or Push?
As we approach the CPI report in the morning at 8:30 AM ET, let’s take inventory of where the VIX sits as well as leading sectors SMH and QQQ to see if we can ascertain any clues regarding the likely direction of the market. If you’ll check out today’s YouTube video, we also go over the S&P and a few other ideas and different points about the same tickers discussed in the newsletter.
One of my biggest concerns for market bulls going into tomorrow is the VIX, which has remained under pressure every day since the election. So far, so good. But not so fast…Not only are we sitting right along the lower Keltner channel, but we also have a resistance-turned-support level that extends all the way back to early 2023 right at this upper 14-area on the VIX. You can even see where the VIX turned prior resistance into support in mid-July, just before the spike. It’s entirely possible the shift was strictly leading up to the election, and now we’re headed back to 10-11, but (for a variety of reasons I won’t get into tonight) I lean toward the higher base being maintained for volatility. This doesn’t mean the VIX won’t rise with the market, it certainly can for some time, but traditionally, we should at least be cautious that higher volatility may imply market dropping from these levels.
Another potentially contrarian signal for concern (also mentioned in a recent newsletter edition): Unlike many prior months, we see the VIX displaying heavily lopsided negative GEX at the 15 strike going into the November 20 monthly VIX option expiration. Not only is the negative GEX not focused on lower strikes, which a volatility bear would want to see in order to set expectations of a lower VIX, but the lopsided appearance may potentially present a short squeeze opportunity in volatility. All of the possibilities mentioned are inherently speculative and uncertain, but it’s good to have various risks in mind as you look at your own positioning.
VIX 3D GEX Graph: www.geeksoffinance.com
Let’s look at SMH, which we also address in our YouTube video tonight. The chart doesn’t appear to offer much of an edge to either bulls or bears, but I do notice that today’s candle closed below the Hull Moving Average for the first time in a few days. Closing below that line is a short signal in my book. Furthermore, bulls should be concerned that semiconductors have effectively led this entire rally, and yet with QQQ and SPY still basically sitting just off all-time highs, SMH has been lagging. That’s a negative divergence among the sector that should (in theory) be leading the charge, barring a huge market rotation and move from growth to value.
We also saw high volume at 220, though we still haven’t reached the G1 Dealer Cluster Zone at 265, which isn’t a requirement, but I would feel better about shorting closer to that area, all GEX factors being equal at that point. So SMH is left in “no-man’s land” with a short signal from the Hull on my chart but without clear direction from a GEX perspective.
SMH GEX Levels: www.geeksoffinance.com
While we won’t delve into SPX in the newsletter tonight, I was glad to see that the 5970 GEX cluster I highlighted in yesterday’s newsletter was prescient today, with a low of 5960 despite the early positive appearance. QQQ (which we’ll get into now) has some interesting levels to watch as well as we look ahead.
First off, looking at the chart, we closed below the upper Keltner channel, and we see a sharply rising Hull below, currently around 508. Either QQQ needs to turn around and rally now, or over the next few days, the Hull will cross over QQQ’s price and create a short signal (at least it will for me). 497-498 becomes a target below the Hull.
On the positive side, ignoring today’s expiry, QQQ’s largest GEX cluster is 515 for Friday. We need to watch any potential changes with that level tomorrow and Thursday, but for now, GEX seems to suggest a good chance of rebounding to hit that level this week.
QQQ 3D GEX Graph: www.geeksoffinance.com
To summarize, we see markets struggling to achieve further lift-off after a blistering move post-election, and some cracks are starting to emerge. Given the broader uptrend, we still view pullbacks as buying opportunities, and we may even have a chance to see markets retest prior highs by the end of the week. But the VIX gives us pause and we may be due for a volatility rebound in short order (meaning a market correction), so stay on your toes and let’s watch how GEX shifts each day.
Join us in Discord tomorrow for our discussions around what’s happening as we close out the week!
If you’re interested in accessing our tools and analytics or taking advantage of our promotion (see the top of this newsletter), be sure to check out our website.
If you’re interested in learning more about our strategy and approach, we address all of these topics in our Geek University course which is included in all memberships.
Thanks for being part of our community and know that we invite your feedback!
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.
The information provided by Geeks of Finance LLC is for educational purposes only and is not intended to be, nor should be construed as, an offer, recommendation or solicitation to buy or sell any security or instrument or to participate in any transaction or activity. Please view our Investment Adviser Disclaimer and Risk Disclosure.
