| Futures sold off earlier this morning to 3225 before recovering to the 3250 area. There was almost no change in data levels for SPX overnight. I actually had to double check the data to make sure the correct code ran!
Things have clearly stalled out, and maybe the most interesting effect of this has been a crushing of 1 month realized volatility (here). Generally when realized volatility drops it should help future (implied) volatility (ie VIX) sink and add to SPX drift higher. Yet there remains little to no call positions added and no signs of real hedging demand. I do find it quite odd that the data shows little to no change – almost like the market doesnt know what to do next. Numerous times over the past several weeks we talked about the market being exposed to a sharp move lower and that situation clearly remains. Of course that alone doesnt mean we sell off but its prudent to stay light on your toes. A break of 3200 may bring out the put buyers and could start a sharp selloff particularly when combined with the negative gamma in equities (recall as stocks move lower(higher) dealers need to sell(buy) to hedge). For today we see a small Combo bar at 3275 and a larger pocket of resistance at 3300. 3250 should be a “pivot” line with 3200 a larger support area. We think bulls continue to have the edge until the warning shot is fired (SPX<3200). |
| Market Outlook: |
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| August positions are very light with largest positions appearing around 3000 and 3300. This range will consolidate next week as new positions build. |