Informe SG Levels

Futures, currently 4550, have recovered some of yesterdays loss. This shift lower does little to our metrics for the SPX, but it creates some sparks in SPY/QQQ. For today we see support at 4550, then 4525. Resistance lies at 4600. While our SPX volatility forecast is 0.6% for todays session, we are handicapping that a bit higher as both SPY & QQQ hold material negative gamma positions.

This dichotomy is best displayed through the vanna charts, where you can see there is a sharp skew to QQQ & SPY (left, middle) vs SPX (right). This skew (or right tilt) is driven through put positioning and higher volatility. This is alerting us to markets being more sensitive to shifts in implied volatility[IV]. With this stance we see markets inversely correlated to IV: IV down/up and stocks up/down.

Further, we are now in the area wherein markets shift from positive gamma, to negative gamma. Our Vol Trigger (which is our official gamma flip line) sits at 4525, but we note a fair amount of positions sitting at 4500. Its also of note that todays expiration sees ~25% of SPX gamma, and ~20% of SPY/QQQ expiring. This is a decent amount of positions expiring which can add to volatility.

Said another way, 4525-4600 is a directionless void wherein its a jump ball for bulls or bears. We think that markets push to one side of this void today.

If markets shift lower we’re now likely to see IV jump up which combines with traders adding new put positions. 4500 is the last real line of support, and what we’d see as our bottom level for today. However, into next week if we break the 4500 level this accelerates the speed of drawdowns which can lead to a quick test of 4400.

On the upside, for today we could see 0DTE (i.e. todays expiration) volatility sellers excited to sell elevated put premiums, which could lead to some quick mean reversion in markets. This would essentially be a short covering rally, with 4600 being resistance. Looking forward, we don’t think the S&P has any material support until/unless it can recover 4600. A close under 4600 is susceptible to a drop back into this “void” on Monday.