Informe SG Levels

Futures are trading near 4275 which is off of 4237 overnight lows. Open interest changes from Friday show the net closing of puts >=4350 & rolled lower. Additionally 20k calls added to 4400. This served to shift many of our key levels lower (Vol Trigger, Abs Gamma Strike, Call Wall) which brings down resistance. 4300-4400 is now our overhead range into next week.

For today we see resistance at 4325 & 4345. Support lies at 4255 then 4208.

Major oil moves (+>5%) are grabbing headlines, but many other commodities are soaring too. Convex moves tend to break things (margin calls, forced liquidations, etc), and at a minimum keep pre-FOMC uncertainty high.

If equities start to shift lower we continue to see it as “controlled demolition” of steps lower, as opposed to “limit down” type moves. When you think back to December/January, traders started to become concerned about Fed policy and that elicited hedges. Therefore when the geopolitical issues sparked, hedges were already in place. Consequently we’ve not seen a major gap higher in implied volatility[IV] and/or market plunge – its been more of a grind (IV higher, market lower).

In other words, because there are large put positions, dealers are left to adjust hedges related to second order effects (e.g. vanna, gamma). If some exogenous event drives the demand for additional put positions, then negative deltas may be foisted onto dealers which could drive volatility higher.

On a larger time frame we have still not shifted from the view that markets won’t stage a major rally until next weeks FOMC & OPEX (barring a ceasefire). Into next week, the lower markets are, the stronger we anticipate the bounce may be. Prior to next week on the downside we note two strong support lines: 4225 and 4120. We’d look for tradable bounces off of those levels, and a more “macro” major support level at 4050.

Conversely, upside resistance into 3/16 continues to read at 4400.