Decision Time Approaches
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Last week concluded a volatile week, with bulls getting wiped out by mid-week, then bears getting wiped out Friday. Despite the narratives in the background to explain the drop, most of which center around the Fed, it’s actually not unsurprising to see one-sided bullishness punished during the week that a lot of calls expire, also following VIX monthly expiration. Last week is over, so we really need to see how gamma (GEX) shapes up this week for both this week and the next several weeks (if visibility is granted by dealers) before drawing any conclusions about the longevity of last weeks weakness. We discuss the approaching decision point and more in our YouTube video posted this afternoon, which you can watch by clicking here.
To add to what we discuss in our YouTube video, we’ll dig into the semiconductors (SMH) as the leading sector throughout the bull market to ascertain any potential clues that might help us in looking at the markets likely next move. But first, let’s take a quick look at SPX’s chart:
The Keltner channels are diverging, forming a jaws pattern with the upper Keltner rising as the lower Keltner drops, potentially signaling volatility in both directions ahead. We see Friday’s candle visited the lower edge of the Keltner, then rejected right at the Hull Moving Average, and still resting below the Hull and the middle Keltner. Based strictly on those factors, I don’t see a lot to convince me the drop is over. We can certainly visit the middle Keltner around 6000, and closing above 5977 might be a bullish development, but looking at the current GEX picture, we’re still in negative GEX territory. With Friday’s GEX rolling off, we’ll take another glance at this as tomorrow develops, starting in the morning.
We were vindicated with the VIX spiking off of the long term resistance-turned-support area we highlighted for days on end, also noting the VIX:VVIX negative correlation signal, but the spike in volatility essentially resets my own analysis as we wait for another potential VIX low to start watching for those divergences again. We see the VIX below the Hull, but still above the middle Keltner channel at 17.56, so we can still see the VIX fall almost 5% while maintaining bullish potential for volatility to spike. The Kelters are angling upwards and we are at a trendline we can draw back to 12/15.
QQQ still looks more bullish than SPX, holding gains from Friday above the middle Keltner channel despite a lower low and a candle fade that wasn’t quite able to reach the Hull at 528.83. The lower Keltner continues to be just below the 500 level at 496.68, which we’ll address below.
QQQ continues to show negative GEX, though it has slightly improved over the last 2 days.
QQQ (as of Friday’s close) doesn’t show as much interest in higher levels at this point, with 500 and 505 representing large GEX clusters, very close in size to what we see at 518-519. the 500 area matches well with the lower Keltner channel at 496, though the similarities certainly don’t guarantee whether or not we will sustain a deeper drop so close to the end of the year.
The semiconductors (SMH, with NVDA as the top holding) look particularly concerning to me. The chart is in a modest downtrend, price is below the middle Keltner and the Hull, and Friday’s rejection was perfectly off of the area I tend to view as a bull/bear line in the sand around 245, The lower Keltner has continued moving lower, with 228 and change reflecting the lower limit.
GEX continues to drop for SMH, and we already see Friday options rolled off, but we’ll still want to see how this changes tomorrow, if it changes.
Lastly, the 3D graph is showing the largest clusters for this coming Friday (a shortened week for USA markets due to the Christmas holiday) at SMH 233 and 240. This negative GEX is below the current price for SMH and thus the 233 and 240 clusters reflect potential targets. Bulls are really going to want to see those positive strikes grow, or else 228 may actually be closer to reality than 260.
We’re rapidly approaching the end of the year, so we are open minded as to how we finish the year and enter the new year. Join us in Discord as we discuss what we see intraday. Hopefully GEX will give us some hints as to where we’re heading looking forward and we hope to see you there!
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