Futures are swinging quite a bit, currently lower to 4330. Gamma starts off this week in a very negative position which implies high volatility not just for today, but for the week. We remain bearish on markets as long as they are under 4380 (Vol Trigger), which is a large resistance line. Support lies at 4324 and 4300. Price action should be similar to Friday, with large directional swings.
Watching implied volatility[IV]/VIX is critical for today. A trend lower in likely invokes higher stock prices, and an increasing level of implied volatility infers stocks will push lower.
It looks like if markets can jump the Vol Trigger (4380) line, then we’d expect a test of 4400. Positive gamma would then kick in which would reduce volatility, crush puts and invoke that “vanna drift” (lower implied volatility leading to dealers buying back short futures) higher.
In the EquityHub SPX chart below, you can see these major gamma-based inflection points mapped out (this model measures how gamma changes, more here). There is a large “node” at 4380 above, with 4430 and 4275 being major inflection points. These points should mark the outer bounds of SPX price action today.
The tricky part with this market is its inability for sellers to “get it over with”. Despite the market weakness the VIX (aka IV) curve has not inverted, and remains strongly in contango. When markets decline and the curve goes into backwardation – thats a signal of capitulation. We’ve only been able to really get to a flat curve (ie red line). That being said the entire curve is inflated so a rally could decompress the structure and fuel a move up (green curve).
Because this curve has failed to invert we’d venture to say there has not been real fear to this market.
Model Overview:
Large negative gamma position forecasts large, volatility swings. This should continue until/unless the S&P recovers 4400.
| SpotGamma Proprietary Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4326 | 4350 | 434 | 14679 | 360 |
| SpotGamma Imp. 1 Day Move: | 2.81%, | 122.0 pts | Range: 4204.0 | 4448.0 | ||
| SpotGamma Imp. 5 Day Move: | 6.11% | 4326 (Monday Ref Px) | Range: 4062.0 | 4590.0 | ||
| SpotGamma Gamma Index™: | -0.70 | -1.73 | -0.21 | -0.01 | -0.16 |
| Volatility Trigger™: | 4380 | 4375 | 436 | 15075 | 370 |
| SpotGamma Absolute Gamma Strike: | 4450 | 4450 | 440 | 15500 | 350 |
| Gamma Notional(MM): | $-642 | $-508 | $-839 | $-3 | $-795 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4390 | 4415 | 0 | 0 | 0 |
| Put Wall Support: | 4200 | 4200 | 430 | 14725 | 350 |
| Call Wall Strike: | 4500 | 4500 | 450 | 15375 | 380 |
| CP Gam Tilt: | 0.82 | 0.73 | 0.77 | 0.82 | 0.55 |
| Delta Neutral Px: | 4304 | ||||
| Net Delta(MM): | $1,404,084 | $1,407,406 | $174,900 | $43,712 | $90,318 |
| 25D Risk Reversal | -0.09 | -0.09 | -0.09 | -0.09 | -0.08 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4500, 4450, 4400, 4350] |
| SPY: [450, 440, 435, 430] |
| QQQ: [370, 360, 355, 350] |
| NDX:[15500, 15375, 15000, 14000] |
| SPX Combo: [4276.0, 4224.0, 4423.0, 4289.0, 4324.0] |
| SPY Combo: [428.59, 423.38, 443.36, 429.9, 433.37] |
| NDX Combo: [14291.0, 14703.0, 14615.0, 14497.0, 14453.0] |
