Pushing Higher
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We didn’t get much of a mid-week pullback, but at least we did get a modest gap down that fueled a rally throughout the day. The VIX initially attempted to push higher before breaking down and losing the Hull on multiple timeframes, potentially signaling more downside for volatility before the VIX can spike again. We will only briefly touch on SPX, but today’s YouTube video covers SPX, SPY, and QQQ fairly in depth, so check it out by clicking here. Tonight’s newsletter will focus on QQQ, IWM, and a brief look at the VIX.
SPX is still just shy of reaching the Hull moving average, rising to within 7 points of the Hull today and keeping the gains achieved. I focus on the Hull because it’s an indicator I’ve had success following for several years after hearing Brian Watt discuss it on a Twitter video (I think he’s only on YouTube now). We see positive signs looking at gamma (GEX), but we need to be aware that SPX has not closed above the Hull since January 24. Earlier this week, I mentioned the possibility of a mid-week dip and rally into the end of the week, which is still a distinct possibility (rallying through Friday is really the only part left to achieve given today’s gap down), but one other similar but slightly different pathway would see the short-term top tomorrow and then a drop Friday. Alright, so basically it can go either way..Not very helpful. But we can look at the data and perhaps add confidence to the pathway after evaluating GEX post-market open Thursday.
QQQ closed well above the Hull, giving QQQ the 2nd most bullish looking chart (2nd only to…IWM) in my opinion. 535-540 is still a likely target, as discussed in prior newsletters this week.
QQQ’s GEX shifted slightly higher than 535-540 today, actually coming close to 545. I still like 535-540 for two reasons: 535 happens to be the largest GEX cluster for Friday’s expiration. 540 happens to coincide with the upper Keltner channel. Given that the Keltners don’t tell us a specific date at which they will be reached, I apply higher odds toward 535, since GEX represents select positioning data and not a theoretical chart line (I know, we can’t get into the chicken or egg argument about which one comes first tonight).
Onward to IWM, the small caps, a source of emotional thrills and pain for traders over the last few years. IWM gapped above the Hull today, attempted to drop below, then was met with wild-eyed, teeth gritting, sweaty palm buying by someone on a mission, bringing it back above the Hull and closing basically at highs of the day. 235 is the next target on my chart, the upper Keltner, but let’s look at the GEX picture.
GEX has improved a lot in recent days, almost back to the zero line. We also see IWM on the doorstep of the G1 upper Dealer Cluster zone, with 230 and 235 showing major GEX. I like the idea of 235 because of the correspondence with the upper Keltner channel, but technically GEX is saying dealers may put more selling pressure on IWM starting at 230, so we at least need to be aware of that possibility. As long as IWM closes above the Hull, my bias is upward on IWM.
Lastly, the VIX lost the Hull on the 2-hour, 4-hour, and daily timeframes, something we noted this morning, quickly identifying 15 as a potential next target. GEX backs 15 as a possibility given that it’s the lower G2 Dealer Cluster, and 15 also represents the bottom of the 2-hour Keltner channel. We saw volume at 40 and 45 strikes worth noting today.
One last “teaser” today is DIA. I’m not posting any charts for now, but looking at the chart, I think DIA may be a big part in anticipating the markets turning back down again. I say this because DIA was the first of the larger cap indices to rally recently (something we called), it was right behind IWM in leading us down in early December, and it’s the most overbought currently, pressing above the upper Keltner channel while remaining below the Hull. We’ll be watching all of the indices discussed here to try and add to our confidence regarding when the party is over for the bulls this round.
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