Quick Reference

‣ SPY close: -0.59%

‣ QQQ close: -1.22%

‣ IWM close: -1.03%

‣ VIX close: 16.20 (-0.20 = -1.09%)

‣ SPX close: 5022.21 [-29.20]

SG Gamma Index™

‣ Wednesday’s (Apr 17): -2.477 (very strongly negative market gamma) [+0.168]

‣ Tuesday’s (Apr 16): -2.645 [-0.887]

‣ Monday’s (Apr 15): -1.758

‣ Friday’s (Apr 12): 0.236 [+1.259]

‣ Thursday’s (Apr 11): -1.023 [-0.777]

‣ Wednesday’s (Apr 10): -0.246 [-0.19]

‣ Tuesday’s (Apr 09): -0.056 [+0.176]

‣ Monday’s (Apr 08): -0.232 [+1.582]

‣ Friday’s (Apr 05): -1.725 [-1.814]

‣ Thursday’s (Apr 04): 0.089 [+0.159]

‣ Wednesday’s (Apr 03): -0.070 [-0.636]

‣ Tuesday’s (Apr 02): 0.706 [-0.637]

‣ Monday’s (Apr 01): 1.343 [-0.013]

Upcoming Market Event

‣ Friday, April 19: Monthly opex

Earnings

All upcoming earnings listed here have either 50k+ average volume or 100k+ open interest:

‣ Wednesday, Apr 17 (PM): AA (avg opt. volume = 10k; avg OI = 190k)

‣ Thursday, April 18 (PM): NFLX (avg opt. volume = 90k; avg OI = 600k)

What’s Happening in the Market

The trend down in strongly negative market gamma did continue today, but the magnitude of the move was less than what the options market was pricing in. As a result, all major volatility metrics decreased today. This also likely helped to reduce the severity of the downtrend today: SPY -0.59%, QQQ -1.22%, and IWM -1.03%.

One fact that is clear from studying the above chart of ES futures (via the SG Bookmap Integration) is that there is the most liquidity just inside of our modeled resistance at 5125 SPX (5167 ES).

This extra dimension of visible liquidity (a darker red and thicker horizonal line shows more liquidity at that level) means that there is validation and also extra confidence on this as resistance. In general, this reinforced the notion that we are in a risk-off environment.

Something else apparent—from a glance at our

Absolute Gamma

model—is that 5300 is losing its longstanding authority as the

Call Wall.

It is now just another mediocre-sized strike. Most likely, it will slip back down to 5200 soon as the range compresses heading into Friday’s monthly opex.

Taking a step back to contextualize how we are looking at the market right now, for several weeks below 5200 was considered a critical breaking point where there was too much risk of rapidly approaching 5000. That turned out to be accurate, and now the situation is the same but with 5000 as support by analogy.

We are so close to 5000 at this point that the downside risk of holding long equities is becoming more favorable—presuming that there are stops in place or most long exposure is self-contained with vertical or horizontal spreads.

We still have double red flags structurally with strongly negative market gamma (SG Gamma Index™ = -2.477) and from being under the VT. However, moving beyond about -3.0 (on the gamma index scale) dealer short gamma inventories begin to flatten.

By combining this dynamic with thoughtful support-level plays, one has an opportunity to try and get exposure to an early part of a recovery curve, if such an aggressive strategy complements your own trading system.

That said, the specific range we are in -2 to -3 on the SG Gamma Index™ scale is theoretically the most dangerous because that short-gamma dealer [inverted] convexity is still a dangerous mechanism for leveraged equity positions.

In a similar logic, we can see that the gamma tilt (ratio of

call gamma

to

put gamma

) is now at the other extreme. As a brief announcement on the interface, which we are continually working to improve, we overhauled the look and feel of this Gamma Tilt model, which should be extra noticeable when you zoom in if anyone wants to share feedback on that.

Concluding with the flows, as usual we like to start with MAG7 for the speed and simplicity of its signals. Throughout the day, put flows were mildly but decisively and consistently bearish.

At 12:50pm EST, call flows changed slopes from bearish to neutral, while puts continued to be bearish; while that does spell for a net-bearish scenario, this is still a less-bearish (more bullish) net influence from the options market. As a result of that change in state, we can reasonably infer that this is what helped equities to become neutral and find a bottom at this precise point.

As is typical, the flows on S&P 500 were more challenging and complex (given they are hit with large and chaotic forces from funds such as variations of dispersion). Evaluating what happened here, we can see that put flows were leading with an early turn from bearish—to neutral—to bullish.

From there, put selling remained strong until the close, which in part accounts for why implied volatility metrics dropped today. The call side also transitioned away from bearish flows at 12:50pm EST, but in a more choppy fashion than put flows—with a mix of bullish and neutral segments.

For homework on strengthening your

HIRO

pattern recognition: AAPL (-0.81%), MSFT (-0.66%), and NVDA (-3.78%) had similar patterns to MAG7 with very cleanly bearish flows throughout the day. AAPL and MSFT both had flat put flows with bearish call flows, and NVDA had the strongest signal with coordinated bearish put and call flows all day.

Below is a prime example in NVDA of what we would like to see for a stock trend-continuation signal. Curiously, we can see that the flow of bearish call flows shifted from strongly-bearish to mildly-bearish at the same time as we saw [bullish] phase transitions in slope on both MAG7 and S&P 500.