Informe SG Levels

Futures are flat to start, holding 4540. As anticipated the market shed a bit of gamma Friday which translated a winder estimated max move for today: 0.72%.  We see a “pivot” at 4548 with resistance at 4575. Support sits at 4525 then 4500. We maintain that some shorter term consolidation is warranted, but overall the markets hold a positive stance as long as the S&P500 is above 4500.

There is a curious divergence in our Call Wall data points, wherein the SPX saw its wall shift lower to 4500 (from 4550), however the SPY remains at 460. Generally we consider a shift lower in the Call Wall a bearish signal as it implies traders are not building call positions overhead.  Typically what you may see when the market is trading at 4550 is for calls to start building up at 4575 or 4600.  There is still a robust position at 4550 so we are not jumping to larger conclusions at this point, but it is something to watch.

We also note the Risk Reversal metric dropped from its call-stretched level of -.04 to -.07 which implies traders have backed off of their “uber” bullishness.  We suspect that Powell’s comments on Friday may have tempered things a bit.

Its likely that focus shifts to tech earnings this week (FB, AAPL, AMZN, GOOGL), and on that point we note the QQQ holds a much lower gamma position than the S&P. We could therefore see much larger relative movement in Nasdaq than S&P, particularly given the tech-heavy earnings.

The bottom line here is that we still hold solid resistance overhead, which builds on any rally. This is shown in our vanna model below. As the S&P rises dealers will in theory have to short incremental amounts of futures to maintain hedges. To the downside dealers will have to buy back some of their short futures positions, which should pad any losses and invoke mean-reverting flows. We therefore look for a fairly quiet session today.

Model Overview:

As long as the S&P500 holds 4500 we expect positive gamma flows and lower implied volatility to boost markets.