Informe SG Levels

Futures are down sharply to 4360. We open in a negative gamma position, which implies large directional swings until/unless we recover 4400. First resistance today is at 4400, and we mark 4330 as a key inflection point to the downside.

Note the sharp change in the skew of the vanna model for today vs 2 days ago. The prior image shows heavy upside resistance (dealer selling as market goes up), whereas today we have dealer selling as the market goes down, and dealer buying as the market goes up. We note that QQQ has a similar stance in which dealers are selling if markets drop and buying if markets rally.

If this selloff is like others, volatility sellers will come out and we could see a very sharp snap back to 4400. Watching the VIX will be critical here – if it trends higher then we look for continued weakness in markets. If VIX breaks down and trends lower, then we look for markets to have a very sharp quick snap back rally to 4400.

We think the odds are that vol sellers/dip buyers take the first shot here and the market catches an early bid. Our opinion is that should we see a pop in the AM that weakens the structure for a decline in the afternoon. If the initial dip buyers fail to recover 4400 that is bearish signal for us, and could place those initial short vol in position for a nasty squeeze on a second wave of selling.

Model Overview:

4500 top, 4400 support into 8/20 OPEX.