Daily Preview: Wednesday, July 17
Tuesday, July 16 Review:
In a rather unusual display of divergence, today we saw QQQ perform considerably more negative than SPY, which in fact was solidly positive. This is particularly unusual in today’s environment where both indices share 8 out of 10 top holdings, with the exceptions being TSLA and COST (that’s tech? really?) in QQQ and LLY and BRK-B in SPY.
Looks like industrials and some financials/healthcare made up the difference for SPY’s more positive performance, which makes sense. “Rotation,” if not only during OpEx week, because market maker’s wallets matter when monthly options are expiring.
SPY gamma (GEX) is 252 million away from the June 17 GEX high, which also precluded a market top within 3 days, though the following decline wasn’t very impressive. Despite the lack of impressiveness, we didn’t see the market exceed that June 20 top until July 5. While it’s not a solid data set, we’ve seen mid-month tops/end of month or early month lows since and including April, which made a mid-month low and then a higher secondary low at month end.
The operating theme with extremely high GEX is that it can signal market participants becoming TOO one-sided in their positioning and thus make room for some volatility to the downside .
QQQ looks less bullish to me, with failure to exceed or even reach the Hull Moving Average today.
GEX flipped negative overall for QQQ, though (as we’ll address in a minute) we can see most of the negative GEX expiring tomorrow. GEX-weighted volatility is becoming increasingly elevated.
Back to the more granular look at what makes up QQQ’s negative total GEX and what we might look for during OpEx week: We see 3 noteworthy positive clusters ranging from 500-510 expiring this Friday. But the largest negative clusters all expire tomorrow, with QQQ 492 representing the largest, and right on VIX monthly option expiration day as well. It’s not unreasonable to think that we might see a whipsaw this week, with either a “fake” breakdown pre-OpEx, then closing at a short-term top Friday, or maybe we see the opposite. We look at a range of polar opposite possibilities with the overarching theme that 1) the market is fairly overbought and we’ve seen a spectacular rally since November and more recently since April, but also 2) OpEx week is often about delivering the most PAIN to option holders, given the incentives to see option premium evaporate.
If we consider the negative GEX expiring tomorrow, I give a slight SPECULATIVE edge toward some sort of downside tomorrow (even if it’s only for part of the day) to kill the higher strike calls and then a move up toward that 500-505 area by Friday.
IWM gets honorable mention, and just yesterday we noted the historical GEX showing elevated GEX running days on end, leading us to predict more short term upside for IWM. Today was the biggest cash session gain for IWM as long as my chart goes back, at least from what we can see below. The initial gap up 4 days ago was impressive, but wow..It just keeps going. Shorts must be extinct by now…
IWM is a bit overdone though, and we’re just outside the top of the red Dealer Cluster Zone. Volume at 230 might mean we attempt a push higher before beginning a correction back toward the zero GEX line or maybe even the green zone, where we will look closely to go long, given a more constructive view toward the 2nd half of the year for IWM as the late bloomer in this rally.
What are we Looking For On Wednesday, July 17?
Tomorrow morning will see the monthly VIX options expire, then we see housing starts announced, then by mid-day we see the Fed beige book and a 20-year bond auction, which can all serve as excuses for market algos to react.
We highlighted the divergences amongst indices and the negative GEX rolling off of QQQ tomorrow, so we will look forward to seeing any GEX shifts as we approach OpEx Friday.
Stay with us in Discord as we share real-time GEX data as we see it and we have some active subscribers also sharing what they see, including in the free channel. Thanks for reading!
