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Jul 25, 2022 | SG Levels | 0 Comentarios

Market Context: Rallies should be categorized as short covering and subject to failure.

S&P 500 Levels:

  • $4,000.00 is significant overhead resistance.
  • $3,900.00 is a pivot above which volatility should decrease.
  • $3,800.00 is major support below which there may be an accelerated sell-off.

What To Watch:

  • Larger ranges following the July 15 (equity) and July 20 (VIX) options expirations.
  • Equity markets may jump into the Wednesday, July 20, 2022, VIX expiration.
  • Implied volatility is likely to rise as we approach the July 27, 2022, FOMC event.

Rally Criteria:

  • QQQ/SPY/SPX > 300/400/4000
  • Call positions building overhead (Call Walls > Absolute Gamma Strikes)
  • MOVE Index aka “Bond VIX” breaking lower

Daily Note:

Futures have recovered Fridays losses, back to 3982. Resistance remains heavy in the 4000-4010 range (SPX/SPY Call Wall). Support shows at 3973, then 3950.

As we’ve been stating there are two forces which should keep markets contained just under 4000 into FOMC:

  1. 400 SPY & 4000 SPX large gamma strikes create resistance/pin areas into which the market may mean revert, particularly if breached to the upside.
  2. The equity tail wind from vol sellers has been mainly drained off ahead of the Fed (see Friday AM note). Generally we view declining vol as fuel for market rallies, but vol should now stop declining.

While 4000 is important for today’s trading, it remains the critical put/call (or bull/bear) pivot line in through FOMC. In the “Rally Criteria” bullet points at the top we’ve outlined our criteria for an extended rally to form, and the release of IV post-Fed could be the spark that slides these 3 conditions into place.

Its clear in the chart below that put positions (negative gamma bars) are very light at strikes >4000. This is why we mark 4000 as the transition from a put-driven market to a call-driven market.

With this, a major part of our work is to build trading ranges based on large options positions. The top end of our range is the Call Wall (4000 SPX, 310 QQQ), and we look for it to roll higher as a signal markets have more upside room. In theory as calls (and the Call Wall) systematically roll higher, the market shifts higher in coordination. We want to see positive gamma bars build >4000 in the chart above to help support market rallies.

Because we remain below 4000, our view is that the ~5% rally off of July OPEX has primarily been short covering (puts decaying, IVdropping) and therefore markets are inherently stable underneath. A rejection off of 4000 with some Fed disappointment slips markets back into a negative gamma feedback loop, which reinvigorates volatility.

We’d anticipate a rather large directional move post-FOMC, and so our view is that traders can afford to wait for to see the markets hand before jumping on board.

SpotGamma Proprietary SPX Levels Latest Data SPX Previous SPY NDX QQQ
Ref Price: 3962 3957 395 12396 301
SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
1.24%, (±pts): 49.0 VIX 1 Day Impl. Move:1.45%
SpotGamma Imp. 5 Day Move: 2.86% 3962 (Monday Ref Px) Range: 3849.0 | 4076.0
SpotGamma Gamma Index™: -0.04 0.39 -0.08 0.02 -0.05
Volatility Trigger™: 3920 3920 393 11750 300
SpotGamma Absolute Gamma Strike: 4000 4000 400 12500 300
Gamma Notional(MM): -132.0 -134.26 -497.0 3.0 -336.0
Additional Key Levels Latest Data Previous SPY NDX QQQ
Zero Gamma Level: 3973 3968 0 0 0
Put Wall Support: 3800 3700 370 11000 280
Call Wall Strike: 4000 4000 400 11925 310
CP Gam Tilt: 0.99 0.92 0.82 1.36 0.78
Delta Neutral Px: 4019
Net Delta(MM): $1,447,075 $1,467,197 $162,332 $53,496 $95,240
25D Risk Reversal -0.07 -0.05 -0.06 -0.06 -0.06
Call Volume 349,003 379,822 1,758,073 7,315 674,265
Put Volume 761,897 719,431 2,909,903 7,802 1,202,469
Call Open Interest 5,415,122 5,446,135 6,709,187 57,688 3,979,358
Put Open Interest 9,509,905 9,656,297 10,947,366 56,017 6,371,253
Key Support & Resistance Strikes:
SPX: [4000, 3950, 3900, 3800]
SPY: [400, 395, 390, 380]
QQQ: [310, 305, 300, 290]
NDX:[14000, 13000, 12500, 11925]
SPX Combo (strike, %ile): [4002.0, 4049.0, 4006.0, 3851.0, 3911.0]
SPY Combo: [399.04, 403.78, 399.44, 384.03, 389.95]
NDX Combo: [12310.0, 12731.0, 12235.0]
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