Will The Intraday Reversals Ever End?
What a fakeout! Bullish end-of-day signals yesterday showed initial promise as the gap down this morning was bought, but then optimism faded into another gut punch for bulls as markets reversed sharply intraday. We noted some conflicting warnings yesterday, but overall, we were encouraged that the reversal higher yesterday would see some follow through. Tonight’s YouTube video (which can be viewed by clicking here) looks at several important stocks and noteworthy signals that might mean we are still on the doorsteps of a larger rebound, and we’ll look at indices from a different perspective in the newsletter tonight.
While SPY didn’t actually close much lower than the low two days ago, the move may feel larger to traders who were impacted by the intraday reversal. Volatility certainly remains elevated.
I’m quite surprised that SPY and SPX have upper Dealer Cluster zones (areas where we will watch for dealers to potentially become sellers) that have held fairly firmly, dropping but not dramatically. We saw 6200 reflected as an upper Dealer Cluster zone even this week, and the shift lower in the zone still shows 600-610 (SPX 6000-6100) to be a possible upper target.
The problem SPY may have looking ahead in the foreseeable future is the lower Keltner channel sharply dropping, and the upper channel is flat, though a shift back in a bullish direction may see these channels shift as well. Until that is proven, any bounce to upper targets is likely a good chance to sell. We need a rebound and then another pullback in order to assess whether or not we are firmly in a downtrend that will continue or whether we will make a higher low and then resume the uptrend. The first step will be for SPY to regain the yellow line (the Hull moving average) and give us a solid close far enough above the line to lower the odds of an immediate failure like today.
Currently, SPY and SPX rest at the lower Keltner channel, which can continue, though typically we expect a rebound from the lower channel, or potentially from a brief overshoot to the downside. Combine this with SPY being in the lower Dealer Cluster zone and we have a setup that may require some patience and waiting through volatility, but the odds favor higher when combining all of these factors.
Looking at the gamma exposure (GEX) Graph above, we see an interesting development, namely that the GEX Intensity Gauge shows SPY to be awfully close to an extreme reading on the negative side when compared to SPY GEX over the last 52 weeks. SPY has been a good contrarian indicator at various times over the last 2 years when we see the GEX Intensity Gauge that extreme. Contrarian signals are typically not exact in their timing, and this is no exception, though I would expect to see something happen in the next few days. A few days (like the last couple of days this week) can feel like forever when the market is moving dramatically, so we exercise patience and scale risk appropriately to account for the above average movement intraday.
Let’s look at perhaps the most solid positive signs from today, starting with IWM above. IWM did NOT make a lower low compared to two days ago, despite the failure at the Hull. IWM’s total net GEX (not shown here) is still very negative and not far from an extreme, which is also a recipe for a possible rebound. Note that IWM is also in the lower Dealer Cluster zone, and the amount of GEX at 200 probably makes that a solid support area if IWM continues lower tomorrow, barring a shifting of the entire GEX structure.
DIA shows several similar attributes to IWM on its chart, including a higher low compared to Tuesday’s low and price sitting fairly deep in the lower Dealer Cluster. In addition, DIA shows some busy option trading activity in the mid-440s, including at the big 445 GEX cluster. The way the structure currently stands, the inevitable larger rebound attempt might get interesting if we continue to show barely any net GEX between 430 and 440. Quick trip higher? We’ll see…Let’s not get ahead of ourselves since we’re still in the belly of the bear currently.
DIA also showed marginal improvement in its total GEX position, still negative, but closer to zero than yesterday’s reading. We are still on “Rebound Watch” and we will be looking to initiate new long positions as soon as tomorrow. We’ll alert our subscribers and guests in Discord and we hope you’ll join!
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