Surviving The Chop Zone
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Indices gave up 2 days worth of gains Friday, bringing indices back below the Hull moving average as we continue sideways in a very choppy fashion since January 21. Outside of Thursday, the Hull has signaled to me to have a short bias (daily closes below the Hull) since Friday the 24th, though of course there were times that we were far enough below the Hull to have expected some of the rebounds we saw along the way. Gamma (GEX) continues to display uncertainty despite higher strikes at 6200+ remaining, so what do we do now? We’ll discuss mostly SPX and QQQ in today’s newsletter, and in our YouTube video we delve into several other tickers. You can check out the short video by clicking here.
My simplistic tactical way of deciding whether or not the chart leans bullish or bearish is to look for longs above the Hull, and shorts below the Hull, and Friday took us right back under the Hull. Futures are currently rebounding, and last I checked, we’re seeing ES right back against the Hull, testing it from below. The VIX (we’ll look briefly at the VIX later) is above the 4-hour Hull, but at daily Hull resistance. The 15-area continues to give the market problems though, so this combined with the fact that SPX is below the Hull still forces me to consider the likelihood of another pullback or continuation of what we saw Friday.
The Historical GEX graph below shows SPX barely tapping into negative GEX territory as of Friday’s close, though I looked at the 3D graph and adding back the GEX rolling off by tomorrow morning will put us back in slightly positive territory. New positioning Monday can and will alter the reading as well, so the bottom line is that GEX is currently firmly in neutral territory, not an actionable reading in and of itself.
Despite SPX closing below the Hull, Friday’s dip took us into a Dealer Cluster zone, though just barely. It’s hard to get excited about shorting when we’re sitting in a zone where we expect dealers to potentially become buyers, even if the box stretches downward toward 5900. Volume Friday was fairly dispersed across positive and negative strikes as well. All-in-all, SPX’s chart looks like bears are in short-term control, while GEX suggests buyers have an edge on account of showing neutral total GEX and sitting atop the G2 Dealer Cluster. Let’s see if QQQ agrees.
QQQ’s chart looks fairly similar to SPX: Almost 2 days of gains wiped out with a big red candle that took price back below the Hull. The middle Keltner channel is close at 519.83, perhaps the next spot to watch if things turn south tomorrow.
QQQ’s total GEX took a far more negative turn, reaching -511M, and a lot of that sits on future expirations beyond Friday the 7th.
Also, in total contrast to SPX, QQQ shows to be sitting in an upper Dealer Cluster zone, where dealers may become sellers. It’s hard to ignore the eye sore we can call the 510 GEX cluster, which is very visible and outsized compared to strike above 510. Is this a pullback target? 2-2.5% downside is quite minimal in the big picture, so this wouldn’t suggest a huge trend change for the market, but it might seem more painful for those using too much leverage on the long side.
Alright, so SPX leans slightly positive, QQQ is solidly negative. Which one is right? Can they both be correct? If the VIX has anything to say about it, any further pushes to the upside for the market may be brief at best, as volume appeared at the VIX 26 level and we don’t see much interest at all from participants in the VIX aiming for prices lower than 15. Volatility sellers have appeared to be in control with each spike to 20 getting smashed back down, so I guess what bulls will want to see is any market pullback being as shallow as possible while the VIX heads toward 20. This would theoretically provide fuel for volatility sellers while allowing the market to resume an upward trajectory from yet another higher low.
Too many possibilities exist in the world of the theoretical, so I think the best course of action (in my opinion) is to see how we open for tomorrow’s cash session and let GEX lead the way from there, which we do every day in our 0 DTE channel. We hope you’ll join us!
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We recently posted a YouTube video, and we have many other short videos, so give our channel a look if you’re curious about recent market commentary and ideas as well as gamma (GEX) concepts explained.
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