Futures are consolidating above 3800, giving back a bit of the gains from Friday. 3800 remains the largest gamma support area with resistance up into 3860. The SPX Zero Gamma flip lines actually slid a bit lower with the data refresh to ~3830 but we believe markets need a push above 3850 to regain some small, but positive gamma. We maintain that a real bull run (and positive gamma support) doesn’t kick in until >3900.
Despite a recovery on Friday, markets remain exposed to a fast selloff much like last week. We see a “void” of sorts from 3800->3750 due to two large put strikes at 3750 and 3700. Therefore caution is again warranted in markets on a break of 3800. While SPX doesn’t appear to hold more volatility potential today vs Friday, QQQ does, and that could bleed into the S&P.
To the upside, passing 3900 may not be a trivial task as the S&P has been jammed in the 3800/3900 box as noted for several weeks now. The vanna chart below depicts dealer shorts increasing as we approach 3900, too which adds to the resistance line there (new members see here for a description from a past note).
QQQ maintains a fairly large negative gamma position and we again look for higher relative volatility in that index. In the Q’s vanna chart you can see how steep the lines are relative to SPX, which infers that dealers have deltas (futures) to buy as Q’s go up, and deltas to sell (short) as Q’s go lower.
Recall too we saw gamma “trough” around 300 on Friday for QQQ. That number appears to have shifted lower (as has the QQQ Put Wall 290 vs 300). This is what indicates to us that QQQ has more downside volatility available than it did on Friday.
Therefore while SPX holds a more neutral stance today than Friday, we see QQQ as poised for higher volatility. Its recommended to use VIX (ie implied volatility) as a guide today: lower VIX = higher SPX and vice versa.
March OPEX is about 2 weeks away and often we look for volatility do decline next week as the market starts to lock down around large interest strikes. The two largest strikes are 3800 and 3900, and so much of what happens this week may determine which magnet things pin into 3/19.
Macro Note:
3800 support 4000 resistance into March OPEX
| Signal Name | Latest Data | Previous | SPY | NDX | QQQ | ||
|---|---|---|---|---|---|---|---|
| Ref Price: | 3831 | 3839 | 382 | 12547 | 308 | ||
| VIX Ref: | 14 | 24.66 | |||||
| SG Gamma Index™: | 0.28 | -0.66 | 0.06 | -0.02 | -0.11 | ||
| Gamma Notional(MM): | $-49 | $-88 | $252 | $-3 | $-718 | ||
| SGI Imp. 1 Day Move: | 0.94%, | 36.0 pts | Range: 3795.0 | 3867.0 | ||||
| SGI Imp. 5 Day Move: | 3831 | 3.11% | Range: 3712.0 | 3950.0 | ||||
| Zero Gamma Level(ES Px): | 3821 | 3829 | — | 0 | |||
| Vol Trigger™(ES Px): | 3840 | 3840 | 382 | 13050 | 317 | ||
| SG Abs. Gamma Strike: | 3800 | 3800 | 385 | 12800 | 315 | ||
| Put Wall Support: | 3700 | 3700 | 370 | 12500 | 290 | ||
| Call Wall Strike: | 4000 | 4000 | 395 | 13700 | 340 | ||
| CP Gam Tilt: | 1.09 | 0.95 | 1.09 | 0.74 | 0.52 | ||
| Delta Neutral Px: | 3727 | ||||||
| Net Delta(MM): | $1,279,120 | $1,303,255 | $200,497 | $37,415 | $86,279 | ||
| 25D Risk Reversal | -0.1 | -0.11 | -0.09 | -0.1 | -0.1 | ||
| Top Absolute Gamma Strikes: SPX: [3900, 3850, 3800, 3700] SPY: [395, 390, 385, 380] QQQ: [315, 310, 300, 290] NDX:[13700, 13000, 12800, 12500] SPX Combo: [3884.0, 3934.0, 3880.0, 3911.0, 3861.0] NDX Combo: [12173.0, 12574.0, 12374.0] SPX is below the Volatility Trigger™. The 3821.0 level is first level of resistance and is critical as its the negative gamma threshold. The trigger level of: 3840 will act as overhead resistance. Watching VIX is key, if volatility comes in dealers will start to buy back shares as their short puts lose value. This could start a rally. The total gamma has moved has moved UP: $-49MM from: $-89.00MM Gamma is tilted towards Puts, may indicate puts are expensive Negative gamma is moderate favoring further swings in the market |
