Looking Beyond VIX Expiration
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Yesterday we mentioned one possible pathway forward that involves another push higher early this week and then a pullback after VIX monthly option expiration, particularly focused on the large negative GEX clusters expiring at 8am ET tomorrow at VIX 15 and 16 strikes. This pathway still exists, and tomorrow’s performance has the potential to validate or invalidate the mid-week top possibility. This would still be within a couple of trading days of the middle of the month, fitting with the cycle of mid-month highs and lows we’ve seen many times over the last few months. Gamma exposure (GEX) looks positive on a swing basis into late March, but we can have an intervening pullback. We discuss these possibilities as well as updates on MSFT, DIS, PLTR, the VIX, and more in today’s YouTube video, so check it out by clicking here.
SPX is on a mission, attempting to drop from Friday’s reversal candle we discussed but seeing buyers step in right above the Hull moving average, validating a bullish pathway toward 6200. We’re barely 1.5% away from a target advertised by GEX for many weeks now. Keltner channels are pointing higher in what looks like a modestly bullish pattern.
I zoomed out of the GEX Levels chart to show that we have substantial GEX at 6150, 6200, 6300, and growing at 6400, amazingly. These levels are pretty far above the current upper Dealer Cluster zone, which is where we expect dealers might become sellers, but they’re potential targets to watch depending on how the next phase of consolidation unfolds.
We spent some time on SPY GEX yesterday, highlighting the really one-sided positive reading we saw Friday that was approaching a big extreme. That number grew even more in yesterday’s holiday session, reaching almost 3B before plunging by 2.2B today to 764M. Remember we also pointed out that the January 22 GEX top preceded SPY’s price declining by 2 days, so it’s at least possible that today’s big drop in positive GEX is a warning. We can only speculate, we don’t know what will happen, but I will not be surprised to see a market reversal after VIX expiration heading into a Friday OpEx with a lot of call premium to kill. We opined on the opposite view heading into the January 17 expiration, warning of a possible squeezing of complacent bears (rightfully so, in hindsight), but OpEx is traditionally bullish, so the next drop could certainly happen after this week is over. We believe caution is warranted and a thoughtful eye toward various possibilities at a minimum, especially if we can reach 6180-6200 SPX tomorrow.
We discussed the contrast with SPX yesterday but we didn’t share any visuals. Here’s SPX’s historical GEX over the last month. Notice the extreme top in January, yet SPX has changed much more modestly than SPY recently, seemingly unexcited to the upside or downside. Today’s decline from just under 2B to 1.45B is far less dramatic than SPY and maintains a somewhat more positive view looking ahead, given the maintenance of net total GEX over 1B.
QQQ gapped up today, getting a bit ahead of itself and experiencing some liquidation intraday. Buyers decided it was the bargain of a lifetime (at all-time highs?) and bought the micro-dip, though they were unable to turn today’s candle green. That’s alright, after 5 green candles in a row, it’s time for a little color change. QQQ’s upper Keltner channel increased slightly to 543.92 (one point), and the middle and lower channel are also pointing higher, a bullish observation.
Notably, QQQ’s upper Dealer Cluster zone did not shift, remaining between 540 and just under 550, and (as you can see below) QQQ’s total net GEX declined to a point that GEX gains since mid-week last week have been erased. This is not bullish, though the data points mentioned don’t necessarily imply an immediate drop in price.
Three last observations about the VIX as we enter the monthly VIX option expiration in the morning: 1) GEX is almost back to the zero line (a bullish change) despite the largest individual GEX clusters resting at 15 and 16 until they expire tomorrow morning, 2) we saw VIX and VVIX diverging today with the VIX barely down and VVIX slightly up, a potentially bearish indication, and 3) the VIX GEX Levels chart below shows the VIX refusing (for now) to spend much time below 15, and volume has been very noteworthy at higher VIX strikes, especially 24 and 25 today.
Let’s see what happens tomorrow after the market opens and we’ll evaluate if GEX is telling us anything about how we’ll wrap up the 2nd OpEx week of 2025.
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