Bears On The Ropes, Jerome Pumping Hope
Our ‘ol pal Jerome Powell sent bears into a tailspin today, with a big gap up this morning for indices after yesterday’s fakeout to the downside. We pointed out last night that QQQ closed where it needed to for preservation of the bull case, though we would have preferred to see a washout that we could buy before more upside. We also mentioned that the market likely didn’t care what we wanted, and sure enough, it showed its disdain for our requests.
We still pointed out some profitable hints from gamma (GEX) this morning in Discord, noting that despite the big gap up and an attempt to move even higher, SPX GEX was not signaling sustainable interest above the 5730s. By the end of the day, while not dramatic, we saw a fade back close to 5700, the largest GEX cluster for most of the day.
SPX’s chart (using Keltner channels as my guides) leaves room to move higher into the end of the week of the market so chooses, even if only temporarily tomorrow. We will cover a few reasons why this might be short-lived though, as we are starting to see extreme GEX readings with big gaps left behind as the market pushes higher.
While Keltners suggest we might briefly reach higher to test those upper levels, we don’t know whether we will fill the gap from Thursday before or after we attempt those higher levels, if we do at all. SPX GEX gives us roughly the same message: We are barely reaching the lower edges of the dealer cluster zone where we might see some resistance and selling, though we can reach further into that zone, coinciding with the upper reaches of the Keltner channels.
SPX GEX levels: www.geeksoffinance.com
intraday, we pointed out that SPX was reaching elevated GEX levels associated with potential reversals, since extreme GEX readings can have a contrarian effect. Today’s close at 2.4B positive GEX is the highest reading in a long time, and certainly higher than the recent highs seen over the last 30 days or so. Extreme GEX is NOT an exact timing tool, but in general, history shows that it’s not a bad time to become more cautious.
SPX Historical GEX: www.geeksoffinance.com
QQQ has the same look, reflecting GEX-indicated upside of about 2.5%, so a little more than SPX, showing the same type of candle and the same glaring gap below.
QQQ reached an equally significant (relatively speaking) GEX peak today, at least the greatest peak until the next one..But QQQ has not reached 1.1B positive GEX often over the last year, and high points have been close to price highs as well.
QQQ Historical GEX: www.geeksoffinance.com
One of our subscribers brought up a great point in Discord today- SKEW, also called the “black swan index,” is at its highest point EVER (yikes!). SKEW measures the perceived tail risk of the distribution of S&P returns looking ahead, and it’s an options-based metric. A very cursory glance at the spikes, including 2020 and 2022, shows that the spikes have occurred some time before major risk-off events in markets, so there’s some value in watching this. I don’t know that the GEX-indicated topping process we’re witnessing now amounts to the top before a crash, but SKEW certainly says we need to be open to the possibility that any top from this point forward may see a drop of an unknown (possibly large) magnitude ahead. Bulls need those feel-good A.I. stories to step up their game, and maybe for NVDA’s Hwang to lay off of the insider sales for awhile. But I digress..
Guessing such travesties can be difficult and stressful, so we will avoid the guessing game and instead look to make informed risk/reward decisions based on our daily GEX outputs, just as we did this morning and yesterday morning.
join us in our free Discord channel or become a subscriber and we will share some real-time updates on how we see GEX shifting in the 0 DTE markets. Hopefully you’ll join us!
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