Informe SG Levels

Futures are down sharply, testing the key 4400 level. As noted, 4400 is critical support for markets as a break of this line invokes negative gamma which likely leads to a spike in volatility. Essentially our models are bullish above 4400, and bearish below.

We see overhead resistance at 4411 and 4430 (JPM collar strike). If markets hold >4400 then this 4430 likely plays into Thursdays OPEX (in other words we think SPX upside is somewhat capped here). Support sits at 4400 and 4380. The only level we see beneath 4380 is 4300.

Yesterday we talked about how the market was pinned to a high gamma level, and how our vanna models showed a neutral stance. That is not the case today. The vanna models (particularly QQQ) are poised for volatility. This is because of the short gamma + high implied volatility position. As markets decline dealers likely have to short futures, and on rallies they must buy those shorts back.

What has us most on alert here are the external catalysts. We like to say “news matters more when gamma is negative”, as that gamma position invokes volatility which leads pundits in a search for attribution. In this case there are rates and energy making moves and while we aren’t here to offer macro perspectives we do know that convex moves are correlated with margin calls.

Below 4400 these things all matter more as its where dealer short gamma combines with any put buying and/or forced selling.

Model Overview:

4430 resistance into Sep 30 OPEX. Negative gamma and high volatility on a break of 4400.