How to Spot Market Real Strength

Step 1: Use Q-Scores to Gauge Underlying Conditions

Start with the Q-Scores: your snapshot of options activity, realized volatility, and momentum, combined into simple scores.

What to look for:

• Option Score: Above 3. This means there’s strong bullish sentiment in the options market, traders are positioning for upside.
  
• Momentum Score: Also above 3. This confirms that actual price action is strong, with momentum aligning to the upside.
  
• Volatility Score: You want this below 3. This indicates realized volatility isn’t running hot, which helps trends sustain. When the Volatility Score is low, it means the tape isn’t choppy or erratic.
  

Now, use your Q-Screeners to check how these scores are evolving day over day:

• Option & Momentum Scores: Rising day after day? Strength to strength. Good sign.
  
• Volatility Score: Drifting lower? This means the market is less stressed. Also bullish.
  

This simple Q-Score grid already filters out a lot of false moves: a true strong trend should show persistent option flow and momentum, paired with declining realized vol.

Step 2: Analyze the Downside with Net GEX

Next, check the Net Gamma Exposure (Net GEX), specifically, the negative side. Think of large negative gamma clusters as pockets of hedging pressure: when these clusters shrink, it means traders are covering downside hedges, showing more confidence.

A healthy trend will often see:

• Big negative GEX zones shrinking: less hedging demand.
  
• Net GEX flipping positive or less negative around spot price: dealers start to stabilize moves instead of amplify them.

Step 3: Confirm with Call Positioning

Strong markets attract call buyers. Look at how calls are accumulating:

• Is there a wall of positive gamma forming at strikes above the current spot? This means traders are bullish beyond today’s price.
  
• You want to see strength at spot, but also further OTM. That shows investors positioning for upside continuation.
  

Your Multi-Expiry Net GEX view and Option Matrix are your best tools here. Don’t just check near-term expiries, see if calls are building across several maturities. Broad, multi-expiry support means the market’s conviction is more than just a short-term bet.

Step 4: Study Term Structure of VIX and SPX ATM

Now, take a look at the big picture in the volatility complex. This is where the term structure tells you if the market’s stress is subsiding or rising.

What you want:

• Term structure in contango: near-term implied vol is lower than longer-dated vol.
  
• Or, if backwardated, is it steepening back toward contango? That’s a sign that near-term fear is easing.
  

For example, if the front of the curve (next week’s SPX ATM IV) drops from 18% to 15%, while the back month holds at 18%, the curve steepens. This is healthy, you want vol to compress during an uptrend. It’s a sign traders aren’t urgently hedging.

Step 5: Check the Volatility Smile

Next, zoom in on the volatility smile. This curve plots implied volatility across strikes. In a healthy market, you often see:

• Downside skew reducing: Traders feel less need to own puts, so the left tail drops.
  
• Smile flattens or steepens bullishly: Upside calls become more bid, lifting the right side of the smile.

This means upside convexity is getting bought: a sign that participants expect and want more upside.

Step 6: Read the Systematic Positioning (CTAs, Vol Control)

Now, don’t forget about the heavy hitters: systematic funds like CTAs, Volatility Control, and Risk Parity players.

These funds are trend followers at heart, they thrive on steady, directional moves. They get “turned on” when trends strengthen and realized vol drops.

What you want:

• CTAs showing net buying potential, that means more systematic flow could add fuel to the trend.
  
• Volatility Control models leaning bullish, declining realized vol means they can up their equity exposure.
  
• Risk Parity still supportive, stable vol keeps leverage higher.
  

If these big players are buying, they can reinforce the price action, turning a modest uptrend into a sustained melt-up.

Step 7: Confirm with Market Breadth

Finally, always check your market breadth dashboard. A healthy uptrend is broad:

• Are sectors outside of mega-cap tech participating?
  
• Is the number of advancing stocks expanding?
  
• Are we moving into a green box on your breadth indicator: showing that the rally isn’t just a few names carrying the weight?
  

Breadth that expands means the move is less likely to fade at the first sign of weakness.

Putting It All Together: A Practical Example

Say you run through this checklist:

• Q-Scores: Option & Momentum strong; Volatility weak.
  
• Net GEX: Negative clusters shrinking; calls building above spot.
  
• Term structure: VIX & SPX ATM in contango.
  
• Smile: Downside skew dropping, calls bid.
  
• CTAs: Net buyers, Vol Control supportive.
  
• Breadth: Expanding into green box.
  

That setup checks every box for real market strength. You’re not chasing noise: you’re riding a broad, healthy trend with systematic buyers behind you.

Now you can size your trades with confidence. Maybe you stick with long calls, debit spreads, or bull put spreads, the structure supports it.

Final Word: Real Strength Is Multi-Factor

In 2024, no single chart gives you all the answers. True trend confirmation blends options market flows, volatility structures, systematic flows, and breadth. This layered approach keeps you from chasing fake moves, and positions you to ride real strength when it appears.