Barrelling Toward The Destination
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Today’s VIX expiration at 8AM ET went exactly as anticipated, with the VIX closing candle for that hour resting right between those two large negative GEX clusters at 15 and 16 we pointed out. This means the puts at 15 all expired worthless, and the premium on the puts at 16 were greatly diminished. Very typical of what we have seen on recent VIX expiration dates. Now that the constraints have temporarily been removed from the VIX with those options expiring, we’ll see what the market brings. We discuss these possibilities as well as updates on NVDA, SPY/SPX, BTC, Z, and more in today’s YouTube video, so check it out by clicking here.
Let’s revisit DIA, which we haven’t spent much time on lately. DIA has been a good leading indicator at times, as strange as that may seem. We highlighted the late January timeframe when DIA seemed to be topping, and sure enough, it did have a small pullback. However, this pullback morphed into sideways consolidation, building out the pattern of a flag instead of a downward slope on the rollercoaster. As you can see on the chart above, this sideways consolidation, combined with a steeply rising Keltner channel and price holding above the Hull moving average, creates a picture of an index that appears to be ready for another leg higher, potentially to 455-460. Let’s see if gamma exposure (GEX) agrees.
Net total GEX bottomed in early February, rising ever since, a positive divergence despite price moving mostly sideways.
DIA’s upper Dealer Cluster remains between 450 and almost 460, and we saw notable volume at 455. In the short run, there’s nothing bearish about DIA’s chart or GEX picture, and DIA seems poised for a 2-4% move higher. Given that OpEx is Friday, we may see this move before the week is over, in contrast to a previous speculative view that we would potentially see a pullback this week. A pullback is definitely still possible, but the GEX picture suggests we’re more likely to move higher first, even if we do drop by sometime Friday.
In contrast to the very bullish DIA chart, QQQ looks more modestly positive, though we can admit the Keltners are still pointing somewhat higher and price is holding above the Hull. We don’t see as much overhead room before QQQ exceeds that upper Keltner channel, and GEX hasn’t been growing at higher prices, either (though SPX has seen an increase in GEX at higher strikes). If the Keltners are accurate, the odds of breaching and holding above 545 are not great at the current moment, leaving a little over 1% upside from these levels.
QQQ’s net total GEX has been maintaining elevated levels, despite a comparison to a similar level back in January, which marked a topping process. These GEX extremes (or close to extremes as measured over the last year) are fairly good at signaling short-term tops, though they don’t necessarily indicate a major change in trend. All signs still point to higher prices after an intermittent pullback, at least as of this moment.
QQQ’s upper G1 Dealer Cluster zone shifted higher over the last couple of weeks, but for the last few days, it’s still stuck between 540 and 550. This leaves a little room for higher prices, but we view further upside cautiously in light of dealers potentially becoming sellers in this zone.
Lastly, let’s take one last look at the VIX tonight. You may recall a previous newsletter where we laid out a possibility of visiting 13.98-14.3 or somewhere in between. Surprisingly (to me), the VIX made a low of 14.74 recently and popped back over 15. The tricky thing about the VIX is that we can’t always assume “VIX down=market up” or “VIX up=market down,” in final stretches of a rally, we often see the VIX climbing alongside the market, showing positive correlation. So maybe we won’t get a VIX crush to 14, and that doesn’t necessarily mean the market won’t continue rising for some time. But with OpEx Friday and lots of option premium still out there to kill, maybe we can still see the VIX crushed down toward 14. Regardless, participants are almost exclusively interested in higher VIX strikes, based on today’s and yesterday’s option volume. We saw action at VIX 20, 45, and even 50, so the VIX shorts may be pressing on a string at these levels.
In summary, indices have validated a bullish view, with both GEX and various indicators supporting a view of higher prices. That said, the VIX is at an important level that has represented a floor for volatility in recent months, so this current leg of the markets ascent may be near an end. We currently view any pullback of 1-3% (or even a little more) as a buying opportunity, and we’ll continue monitoring shifts in GEX.
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