On the hourly, we filled the gap and made a lower low and a lower high. This is a sign that we are possibly reversing. Another thing to note is that we are below the 50 level on the RSI and below the MA, which is bearish. But one thing to note is that the MACD is near the 0 level where it has bounced off each time during this entire run up. There could be another bounce before we roll over fully.
On the daily, the RSI is overextended and right at the MA. This could be a sign that we have another bounce left to form a bearish divergence on the daily chart. But overall on the daily, it is still a hella strong uptrend. There’s no reason to be bearish right now as we are above all my supports. Another thing to note is that there are big resistances above at the 429 and the downtrend line. I personally don’t think that we’ll get past this during this run without a good pullback, but we’ll see.
I know some people think TA on the VIX is useless, but I’m doing it anyways. The VIX is in a falling wedge which usually signals a breakout to the upside. That’s what I’m watching right now and because the VIX isn’t going any lower, I’m cautious for any green days right now.
One thing to note is that the yields rebounded after the FOMC minutes. Could this cause more pressure on the markets to cause a pullback? We’ll see.
I’m personally bullish until the end of the week. I don’t think that we’ll have a major sell off until next week considering the options market and opex. I also don’t think we have enough bad news to cause a sell off right now. I’ll be continuing to scalp and not swing anything until I see a confirmation of a downtrend.
This makes SPX 4300 a very strong magnet, and we might very well end the week here.
Also note the lack of any meaningful gamma beyond the 4300 level. So not much to pull the market higher.
Finally, it seems like folks are starting to hedge more. Could be opex related, but also could be folks preparing for a trip downward. The setup is certainly not bullish, like the last two weeks, anymore.
I still can’t post more than 1 pic per post so just trust that my charts are showing what I say
TLDR: I personally think we’ll have a green day tomorrow with some red days coming in starting sometime next week. Tomorrow is also monthly options expiration so it can become volatile.
SPY Hourly
So on the hourly on SPY, we were flat. Nothing else to say other than this is consolidation leading into a big move in either direction. So be careful. The two levels I would look at are: 429 for bulls and 425.5 for bears. This is a breakout of the consolidation range right now.
On the daily, we are nearing the downtrend again. It’ll be a good sign if we break above the trendline tomorrow because it’ll look like that we have a bottom confirmed. Also the RSI is bouncing off the MA, which might be cluing us into us making a higher high on SPY but a lower high on the RSI. MACD is still looking strong. Overall, the daily is still a strong uptrend as we haven’t broken any major levels. One thing to note is that this run up has become weak based on the volume. Just some warning signs, although it’s not smart to reverse the trend right now unless it’s longer dated with money available to average down heavy.
VIX
VIX died again. Rest in piss bozo.
Dollar
One thing that’s giving me major warning signals is that the dollar is surging right now. When the dollar and the stocks move up together, it usually means that this is a bull trap and we are going to pullback. I’m going to be very careful on calls and going to be leaning towards puts if I’m going to swing.
Warning Signs
Another huge warning sign for me is that the bond market is not agreeing with the stock market. When this happens, this usually means that this rally is fake just like March and we are going to have some kind of big pullback. Again, until I see actual confirmed downtrend, I’m not entering puts yet. But some major warning signals.
Another warning sign is the junk bonds are still selling off and not making higher highs like stocks. This is another sign that this rally is fake.
Conclusion
Overall, we are in a strong uptrend and I think we are near the end. Many bearish divergences and warning signs that we will get a good sized pullback. To make things clearer, I think tomorrow will be green or at least make some kind of big high before we sell off into a big pullback. I personally think that we’ll sell off around to the 50 MA on the daily which would be around 395.
The DXY has been moving up along with the market lately. It’s been strange.
Welp here we are.
DXY is approaching its old uptrend line, and just broke yesterday’s resistance of ~107.6. The DXY hasn’t been this high since mid July. Not a good sign for the stock market.
All that gamma has coalesced at the 4300 level. (More a reflection that today is opex, and less so about major shifts in OI.)
This means that the underlying tendency of the market will be to drift up to SPX 4300. Looks like markets will open red though, and this drift didn’t seem to be in action yesterday … too many folks trying to time the top?
They take the view that understanding how dealers respond to options flows gives one usable intel for trading. I’ve found it useful over time at a general level, though changes in fundamentals, macro conditions or sentiment tends to trump the effect of these underlying flows.
As for max pain, it’s a rather rudimentary take on the same thing, and generally not helpful. Because not all premium is of equal value. And closer to opex, very little other than just close to the spot price matters. Delta and gamma hedging is also not a linear exercise, and there are feedback loops that work differently in positive gamma vs negative gamma territory. Max pain doesn’t take any of this into consideration.
Major oversight on my part in reading SG signals. I was so fixated on the 4300 wall that I missed this bit in their AM note:
Zero gamma is where dealers are perfectly hedged. And this is where we are now, at SPX 4226, 10 mins to market close. Valuable and humbling lesson learned, to not lose track of the other metrics they share, and not get too confident on the one narrative that seemed to work so far…
Will go back to the other opexes and see how well they align, shortly.
Totally kicking myself here… they released this at 7.03am. Only noticed it after spending a whole lot of time on other things trying to understand why markets did what it did today. And there it was, the explanation in broad daylight.
SPY on the hourly is completely bearish now. RSI is below the MA and the 50 line, the MACD broke below the 0 line and broke down below 425 which was the low of the consolidation phase. Overall, seems like we’re changing trends as we’re making lower lows and lower highs. I’m hesitant on entering swing puts here because of the huge gap above that we might fill randomly and because the RSI is close to oversold, which hasn’t meant much this year, but still something I’m watching.
On the daily, we have finally broke the uptrend in my opinion. It broke the 8 EMA and the RSI has rolled over the MA line. We also got rejected off the trendline and seems like we don’t have enough gas in the tank to test it again and break past it. One thing that does confirm the start of the downtrend is because the volume has bigger than yesterday’s, although it could have been because it was opex
VIX seems like it’s breaking out of the downtrend wedge, but there is also a huge upwick on the VIX, which doesn’t give me much confidence in this breakout. Overall, something to watch out for in the upcoming days.
One thing that I am watching out for is the dollar. It’s breaking out heavy so I’m leaning towards puts right now. This is not a good sign for stocks and a warning sign that this pullback may go deeper.
Another reason why I’m more bearish is because of Bitcoin. Bitcoin and the Nasdaq are usually correlated, but that’s not the case right now. This signals that the stock market’s move up is wrong because smart money usually buys crypto if we are at the bottom or the true bull trend is starting. Bitcoin broke out of the bear flag and looking to make newer lows. Something to keep in mind and being too optimistic about the bull trend right now.
One of the other indexes that I’m looking to swing puts on right now is ARKK etf. It’s been very weak so far and looking very bearish compared to the other stocks. I’m looking for a break below of 44 or a rejection from a retest of 47. It’s either this or BITO (Bitcoin ETF) puts. This is because these seem more bearish than SPY so they would have more downside.
Overall, seems like SPY is looking to have a good sized pullback right now and it’s time to get cautious again. Also something to watch out for is that we are rejecting right off the 50 MA on the weekly. Usually this meant that we have not seen the bottom and this was a bear market rally. Be careful all.
I know this took time. Thank you for that. Explaining all of the signals an experienced trader goes through before making monetary choices if very helpful.
Went through all the SG notes from the beginning and end of opex week this year, lined up the zero gamma and delta neutral levels with SPX open and close. Details below.
Looks like the alignment is not quite there. Friday’s matchup between zero gamma level and where SPX ended seems to be more of a rarity than a regular occurrence.
I’d consider any close within 0.5% of provided levels as actionable, otherwise the differences are probably indistinguishable from usual volatility. By that metric, zero gamma and delta neutral levels don’t seem actionable in most cases.
Two observations:
The zero gamma and delta neutral levels seem to systematically overshoot where SPX ends up at
May and June show how macro events can completely throw the technicals off kilter - stated levels were ~10% away from where market ended up
Could be another slight signal of a market rollover. In past major bear market rallies, QQQ led the rallies. They should in theory be also the leaders in falling.
However, as Conq also pointed out, this was just 1 red day (however a big red day) after several days of green. It is uncertain whether this is just a pullback in an uptrend, the start of sideways ranging, or if this is really the market rollover. Bears shouldn’t pop the champagne yet. We will see.
Recall that next Friday is a big day for the market. PCE numbers and JPow commentary at the Jackson Hole Symposium 2022. I wouldn’t be surprised if the market was mostly mild until then.
Hello. Very similar compilation here of what y’all are talking about. Wouldn’t surprise me if you guys are contributors to WSJ haha. This article was from Thursday afternoon regarding opex yesterday 8/19/22. Parking here
Interesting to see the fed rate expectations drop over the weekend, almost 60% for 50bps… No real data coming out monday so market might stay kind of flat until we are hit with some global & local numbers Tuesday morning.
Bitcoin is also holding steady currently around 21.4k… But of course anything can happen overnight.
Quick thought while I’m out for a run I wanted to get out there, have we considered how much pressure is on the fed right now with mid-terms coming up? Inflation is already top of mind for everyone but general market/retirement account values also factor in, will we see all the tools get deployed to try and prop things up to try and sway public opinion before mid-terms? I’ll look into it more later tonight and see if I can find anything to support these thoughts
While politicians have already been causing long-term damage in order to give short-term benefits to try and prop up their numbers for elections, I don’t believe the fed is swayed by election cycles, and unfortunately their job is that much harder having to counteract every bad choice congress makes. Their job is to keep the economy stable and they operate completely independently from congress.
Thus far the fed has been sticking to their plan that they’ve re-iterated over and over the past few months. Everything they do is on longer time scales and rather methodical. Like I mentioned in the Kodiak Bear Thesis thread, the fed is going to kick up QT a notch in September which between that and the rate hike we should start seeing some numbers really change in October & November.
The market is on cocaine thinking the fed is going to start lowering rates this year when core inflation hasn’t come down one bit yet! This bull trap is going to be on a meme scale of collapse at some point in the future. People should have seen red flags everywhere when Apple is within $10 of it’s ATH right now.
