This Time Is Different!
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Alright, NEVER say “This time is different!” But let me make the case (if I didn’t jinx it) for a larger rebound being closer. Also, for some big picture context, 2 of the last 4 trading sessions did end up being positive days, and most indices were essentially flat since Tuesday, with DIA actually closing positive over the same timeframe. IWM in particular gave us a signal not seen since February 18, but we’ll make you wait to look more closely at that (NO SKIPPING AHEAD). Tonight’s YouTube video (which can be viewed by clicking here) covers our view of SPX in depth, including discussion of the 5500 level and the GEX we’re seeing at that area. We also go over BTC, NVDA, PLTR, and more, so check it out!
SPX once again touched the lower Keltner channel Friday, but impressively, bulls were able to turn the tables, rallying right into the declining Hull moving average. Closing right at 5770 puts SPX essentially at the line, a place we’ve visited every one of the last 7 trading sessions, closing at the line 3 of those sessions. Bulls might have rather seen price close decisively above that line, but it’s not surprising to see progress halt at that line, given the trend and given recent rejections. From a loosely defined maximum pain philosophy, I wouldn’t be surprised to see the next move be a gap above or below the line, otherwise it’s too easy for day traders to join in the party for the more complete move, right? I recall recent major bottoms involving a few gaps off of the lows. We definitely need to see SPX holding above the yellow line to grow some conviction that the rally has legs, and that the large GEX at 5800 can be overcome.
Looking at the gamma exposure (GEX) Graph above, we see SPX maintaining negative GEX that is close to what we would consider strongly negative at close to -1B. 5750 and 5700 are the next big spots to watch if additional attempts are made to push lower again, and the upside picture is fairly open until 6000 at this moment, at least once 5800 is conquered. It’s likely that GEX will shift once we breach 5800, but for now, 6000 as an upside target appears realistic.
Furthermore, we still see SPY near a negative extreme, which has been a good contrarian signal in the past. Relative extremes are never exact in terms of timing or how extreme things will become, but in general, reaching these areas calls into question the risk/reward in what was the prevailing directional trend.
The VIX also gives bulls hope for the 2nd time in 3 days, closing below the Hull by roughly 2.5%, a solid close beneath the line. Keep in mind Wednesday we also saw a close below the line, but then we saw the VIX gap back above the line Thursday, so we aren’t out of the woods yet until we see continuation. It’s encouraging that the highest volume was at the 20 strike, followed by t he 18 strike. We still see volume and GEX at 30, 35, and 42.5, so we can’t ignore eventual expansion for the VIX to higher strikes.
Here’s what I find most encouraging, other than the fact that DIA was positive from Tuesday through Friday: IWM closed above the daily Hull for the first time since February 18, and as regular readers are aware, I consider the Hull to be an important line-in-the-sand for a directional bias. Above the line usually means longs get paid, though we are admittedly very close to the line, conveying higher odds but not necessarily a guarantee (nothing is ever a guarantee anyway). IWM is very one-sided with negative GEX at the moment, and fairly close to a negative GEX extreme, conditions that support the idea of a quick move higher to lead the way for other indices. With big negative GEX at 215, we will watch what happens in that area to try and assess the likelihood for continuation above that line (also close to the middle Keltner channel) or failure again, which would be convincing of the potential staying power of this downward slide.
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