Approaching Resistance
What a day! With the market correctly (in hindsight) anticipating resolution following the election, major moves occurred across the board as participants rewarded sectors believed to be favored looking ahead and punishing those believed to be facing headwinds. Gold had almost a 100-point range, closing near lows, while TSLA (one we highlighted as recently as Monday) rocketed higher. The VIX got smashed down to the 15-handle, and IWM conducted a funeral for short sellers with a massive gap up. Check out today’s YouTube video, where we discuss the broader market, what might be next for the VIX, and a brief discussion of GDX and KO.
Speaking of IWM, let’s start there. Incredible moonshot toward the upper Keltner channel on the weekly chart. In fact, I find some confirmation that my settings are still relevant, because look at how close price came to that 237.30 upper Keltner. We’ve been bullish on IWM since early in the Summer, and it’s been in a nice uptrend for some time. The new administration is perceived to be beneficial to small caps at the current time, which likely supports a “buy-the-dip” mentality with IWM. That said, the upper Keltner channel (especially on the weekly chart, and we’re way over the top of the daily Keltner) shows us at least 3 solid examples recently where it marked tops, and no examples where price exceeded and stayed above the top channel.
Looking at the GEX (gamma) Levels chart below, we see today’s gap up took us right into the upper Dealer Cluster Zone, which backs the idea of a pullback sometime soon. We can stretch a little higher according to GEX levels, perhaps 240 or so, but this is the area where we expect resistance, unless we see GEX shift higher for G1 and G2 clusters.
IWM GEX Levels: www.geeksoffinance.com
Lastly as far as IWM is concerned, we see a big, positive spike in IWM GEX today. But as far as IWM goes, large positive GEX spikes have sometimes been associated with exact tops, like the October 16 IWM high and GEX high. All things considered, we have 1) a bullish overall picture for IWM that is being fulfilled so far, but 2) it’s probably reaching a level of overbought that will see a pullback soon.
IWM Historical GEX: www.geeksoffinance.com
SPX’s weekly Keltner is at 5998.74, very close to a big GEX cluster at 6000, but for the sake of the newsletter, let’s look at QQQ on a daily chart:
Regarding the chart above, you can see today’s very bullish close, near the highs of the day at 505.65, is within 1% of the 510.25 top Keltner channel. Switching to the GEX Levels chart below, you see that the upper Keltner also coincides with the big Dealer Cluster Zone that starts at 510. We can certainly go higher, but I like the odds of possibly hitting that 510 (give or take) and then seeing some sort of pullback materialize.
QQQ GEX Levels: www.geeksoffinance.com
One red flag that I see that gives me pause in expecting a new runaway bull market to continue straight into year end is the lack of meaningful change today in GEX positioning looking ahead. We still see 6000 SPX (which did change in terms of timing this week, as previewed earlier in the week) and QQQ shows a variety of positive strikes between 500-515 but really nothing too meaningful at higher strikes, at least not any time soon. With 515 as the largest positive GEX for OpEx November 15, the market seems to be telling us to not expect huge upside from here.
QQQ 3D GEX Chart: www.geeksoffinance.com
We specifically mentioned the VIX yesterday as having a setup to run to 25-26, but we also noted the repeat high volume each day at 14-15, which also coincides with the lower Keltner channel. We said election certainty today would likely see those lower targets reached, and alas, we came very close to 15. Also notice the uptrend that has occurred since July, and today’s VIX crush only took volatility back to the support since July. Perhaps a topic for another day, but even with the market higher, we may be entering a different volatility regime characterized by a higher VIX, and in due time, if the Trump administration is successful in their stated objectives of eliminating certain departments by 90% and corralling government spending, a major source of “stimulus” may be gone and we may see huge ramifications for physical assets and financial assets. We will touch on these issues along the way as they become more relevant..Let’s trade what we see in front of us in the meantime!
So markets generally look bullish, but we may have a dip soon that we can buy. When is this likely to materialize? We have no idea, but I know that the Federal Reserve announcing their interest rate decision and Powell’s press conference tomorrow have lots of potential to create volatility. We also have OpEx (monthly option expiration) next week, and the VIX monthly option expiration two weeks from today. My personal speculative view is that we may see SPX 6000 and QQQ 510 as soon as tomorrow or Friday, which may imply a pullback into OpEx. Or if we don’t make it to 6000 this week, we may see a pullback because “bad cop” Powell comes out,which may defer hitting 6000 until the end of OpEx week..Regardless of my contrarian dreams, every morning we’re analyzing what 0 DTE GEX tells us about the upcoming day and we’re seeing success in acting upon good setups.
Join us in Discord tomorrow for our discussions around what’s happening as the day progresses!
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