Mixed Signals
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Today’s YouTube video discusses some potential long ideas as well as analysis of our current indecisive point in time for the market, though we still lean toward a bigger bounce coming. Will this bounce happen before or after more downside? Important question…We’ll look at several point and counterpoints in the newsletter, and you can watch the YouTube video by clicking here.
First off, let’s look at SPX, which did give us an early bounce (I’ll call that a half-victory?) before fading back to almost unchanged on the day. One positive I’ll note is the higher low and higher high printed intraday. SPX and QQQ failed to get anywhere close to the Hull moving average, a key support/resistance area I would like to see tested for a sense of where we will go next. We did get 2 tests of the Hull, but only by DIA and IWM. We’ll discuss those next. To summarize what I’m seeing on the chart, we are right in a coin flip zone where we could drop to actually test the lower Keltner channel at 5887, or we can boucne to test the Hull at 6044. I believe gamma exposure (GEX) gives us better clues, so let’s discuss GEX.
We did see some improvement for SPX in terms of total net GEX, yet SPX still sits in negative GEX territory. The overall trend since the GEX low does seem to be higher, though, which can be interpreted as a positive.
I will also mention this, despite not showing our 3D graph: All of the meaningful negative GEX clusters (except for one) are concentrated on this week, especially Friday. Meanwhile, all of the noteworthy positive GEX clusters are concentrated on March and April expirations. This doesn’t imply that we won’t see negative GEX added as we enter March, we can certainly speculate on that possibility, but at least the current picture suggests participants are comfortable with positioning in higher strikes set to expire later on in March and a potential conclusion to the downside picture this week. This may prove to be potentially valuable, though we need to monitor developments. The idea certainly fits with what we’ve been seeing for weeks now, in terms of a late March high compared to where we’ve been.
Let’s look at IWM, which we haven’t reviewed in the newsletter lately. IWM’s chart doesn’t look particularly bullish, with mostly sideways price movement over many months, but the recent decline has taken price down to the lower Keltner channel, a potential bounce zone. Similar to DIA, IWM did test the area close to the Hull and rejected, though IWM did print a higher low and higher high relative to yesterday.
IWM’s GEX is pretty extremely negative, and GEX-weighted volatility is also near a high. These are potential contrarian signals, despite the lack of noticeable positive GEX strikes that could serve as upside targets.
IWM made an extreme GEX low on Friday, and GEX has generally improved since then, though it’s still deeply negative. If we see indices continue lower in the short run, I will watch DIA and IWM for early signs of reversal. In the meantime, DIA and IWM were already closest to their lower Keltner channels, so a move lower may mean these two overshoot to the downside temporarily.
DIA’s chart looks more bullish than IWM, with the Keltner channel generally in an uptrend, but we have the same Hull rejection that we see with IWM. DIA needs to hold above 437 and we may see 444 fairly quickly.
DIA continues showing higher volume at higher strikes, especially 440. We also see 445 reflecting major GEX, close to the 444 middle Keltner channel. The remaining question is whether or not we visit 429-430 before reversing higher. If SPX’s GEX cluster expirations and the positive divergences we’re seeing with GEX translate to DIA and IWM as well, we may see a reversal as soon as this week or early next week.
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