Today should be quite interesting. Futures are down to 4380, but up off of 4372(4378 SPX) which is our main support line for today. 4330 remains a major downside inflection point, and we think that would be todays low should larger selling ensue. To the upside we note resistance at 4405 and 4425. Only 8% of SPX gamma expires today, but 28% of SPY gamma expires which is large.
The gamma flip lines have pushed higher to the 4375 area from 4350. We think this is the result of ~14k short dated put options added to 4400 yesterday (therefore Monday this flip line likely changes sharply). The skew to the vanna model has shifted quite a bit from yesterday, too. This infers higher volatility today, and that a trip back to the 4420 area is just as quick as a visit lower. A close under 4400 is concerning for bulls, and under 4378 is a clear “risk off” signal into the weekend.
We continue to think that the downside is capped near 4330 due to put positioning. If traders come out today looking for large hedges that could obviously change the picture – but that would have to be very strong demand. If we close near 4330 today that could be a stage for a second leg lower on Monday, with 4175 showing as the next major inflection line.
As we think tonights close will be quite pivotal to next weeks move, we are going to host a YouTube live starting at 3:30EST. We’ll have up the real time HIRO dashboards, take some questions and offer some analysis of the days action. Click here to join.