Informe SG Levels

Futures have pulled back to the 4200 area ahead of the 9:30 AM EST expiration. For today we mark resistance at the large 4225 to 4230 area (large gamma strikes for SPX + SPY). Critical support holds at 4200, and we think a break of that line initiates a quick test of 4160. The amount of gamma in the market has dropped dramatically over the last few days as the SPX hovers near critical support. Our gamma flip levels have consolidated near 4225 suggesting that markets will open in a low but negative gamma position which suggests we could see more volatility today than in recent days.

It seems the “shape” of gamma has changed dramatically from yesterday into today. Yesterday this model showed a sharp slope from 4225 down to 4060 – but today this model flattens out at 4160 as seen below. This reads as less downside potential. Its interesting that our risk-reversal model and the price of VIX indicate there is little if any fear in this market.

The bottom line from this expiration is that we look for higher volatility next week. That “mean reversion” fuel that has locked things in should be gone. Which way this volatility expresses we take as a function of which side of 4200 markets are on. Beneath 4200 we look for for markets to shift down, while above 4200 could lead to a quick test of new highs.

Model Overview:

A new range starts for July expiration starts next week.