There It Is….
We gave readers a 2-3 day heads up that various signals were pointing to a likely VIX spike ahead, spending particular time on the VIX and VVIX correlation Wednesday and Thursday. We also identified potential targets, ranging from 17-20 based on what gamma (GEX) was telling us. Well, we actually didn’t have to wait long as Friday fulfilled the prediction and saw minimal targets met for the spike. What’s next? I don’t have extremely high conviction regarding what happens over the next couple of days, but we can at least take inventory of some possibilities that have some support as we look at GEX and the charts. We also just posted a YouTube video where we discuss SPY, the VIX, TSLA, NVDA, PLTR, and more.
While we focus on SPY on the YouTube video, I’ll complement that analysis with a look at SPX below, which (as the chart shows) bounced at a logical spot, the middle Keltner channel on the daily chart.
SPX GEX has moved more negative, but unlike QQQ and SPY, which show more “dramatic” bearish levels of negative GEX, SPX is technically still within the wide range of +1B to -1B that we consider neutral. We do need to be aware that the trend has been negative (both for GEX and the price of SPX) and technically we are in a downtrend that started 11/11, What we want to see is whether or not we can expect some sort of counter trend bounce soon and how far that bounce might go, also keeping in mind that this drop is still within the context of a larger uptrend. We had a lot of bullishness going into and just after the election, and it shouldn’t be surprising that OpEx week saw a lot of call premium killed, some might argue by design.
SPX Historical GEX: www.geeksoffinance.com
Despite Friday’s market decline, market bulls do have some interesting developments to give them hope. Hope isn’t a strategy, but there’s nothing wrong with feeling hopeful based on an improved probability of a move in your direction (you can find this wisdom and more in my upcoming book, “The Market Doesn’t Care About You, But You Should Feel Good Anyway” by Jack Handy).
We already mentioned that SPX stopped its decline at the middle Keltner channel. The GEX Levels chart is also reflecting that we’ve entered a G2 Dealer Cluster Zone where dealers might become buyers. And we had unusual volume at the 6000 level, the G1 Dealer Cluster Zone. Keep in mind that a lot of negative GEX rolled off at Friday’s close, which will impact Monday’s GEX reading, depending on how players position themselves post-OpEx. We also see SPY 600 as a growing GEX cluster, so this 600 and 6000 interest is shared and consistent. While SPX and SPY always move in correlated fashion, the GEX readings can surprisingly vary widely, so I have a greater sense of confidence when I see both instruments reflecting similar areas of interest.
SPX GEX Levels: www.geeksoffinance.com
We spent some amount of time going over the reasoning as to why it made sense for the VIX to rally above 15 last week, with all of the puts at 15 expiring this Wednesday. Things might get a bit trickier here now that we’ve spiked above 15 and reached the zero GEX level (17 as of Friday morning) with 2 days remaining until VIX options expire.
Friday’s spike almost made it to the middle Keltner channel, and now that we’ve closed above the Hull, the VIX flips to a “buy the dip” instead of “sell the rip” for volatility. This doesn’t invalidate the meaningful GEX at 600 SPY and 6000 SPX, it simply means timeframes may be different for the two, or we could have volatility steadily increasing alongside the market as well. But for now, the VIX might reach another area of resistance around 18.5, or retrace all the way back to the Hull, anywhere from 13.86-14, a total retracement of Friday’s spike. Such a retracement still preserves the buy signal given by the Hull.
VIX total net GEX did improve due to higher positive strikes growing, but negative GEX at 15 is still dominant.
VIX Historical GEX: www.geeksoffinance.com
Given the GEX positioning, I would expect Wednesday to potentially see a close near VIX 15 by 9AM ET, with a close just above 15 causing lots of VIX calls and all of those VIX 15 puts to expire worthless. If the positioning shifts in a major way, I’ll bring attention to it in subsequent newsletters and possibly our YouTube daily videos.
VIX 3D GEX: www.geeksoffinance.com
In summary, Friday’s close shows deeply negative GEX for SPY and QQQ, and increasingly negative GEX for SPX, but SPX might be the positive canary in the coal mine, not yet exceeding our neutral range yet, and showing interest in terms of option volume as well as GEX at the 6000 area. With the VIX potentially signaling that volatility may not yet be done moving higher, we can’t be certain of the timing of SPX 6000, and GEX may still shift more negative, but it wouldn’t be surprising to see a nice rebound attempt either before or after VIX expiration Wednesday.
We’ll take it day by day and we hope you’ll join the conversation in Discord tomorrow where you’ll see what we’re doing as well as other successful and experienced traders who are part of our community. We’d love to have you with us!
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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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