Key dates ahead:

Founder’s Note:

Futures are up 15bps.

SPX gamma remains negative above, suggesting that a rally could trend as market makers may need to buy stock into a higher prices. 7,800 is the only relatively large resistance strike above. This negative gamma upside is quite an unusual position – one that has been in place for several days. To the downside, we see positive gamma below, which suggests market makers will buy stock around the 7,700 support strike.

Below we’ve projected the TRACE map to the 13th, and you can see that the negative gamma upside remains in play. Should this be the case into the big CPI/PPI prints on Wed/Thurs then that catalyst plays into this negative gamma which could setup a decent upside rally if IV slides. To the downside, if the SPX breaks the 7,680 Risk Pivot then we’d look for an extended downside move.

Below is SPX term structure paired with forward IV (light teal). You can see FIV is > SPX for CPI/PPI, with the upcoming Jackson Hole Fed event drawing much higher likely IV into the end of the month.

The issue clearly is that equities need a catalyst. The main driver of upside has been the AI-hardware story, and that has started to be clouded over by rates which are impacted by the Iran situation. When markets heard that another deal was on the table, it produced an incredibly strong market surge with the first week of August producing a 4% SPX rally. Along with that was a massive call volume day(s) with VIX responding higher in kind. You can see that large call volume spike in the plot below. This pushed SPX to new highs in the 7,700-7,800 range – but since then we’ve been stuck. While we’ve been stuck, put volume has dwindled, too (bottom plot).

As we show above, buyside traders are long SPX calls (negative gamma above), but those things are going to burn in the absence of an upside trigger. The trigger, it seems, would be lower rates/no hike.

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