Futures are up some, trading near 3880. 4000 remains the key strike, which we mark as resistance for today. Above that line, resistance is 4024. Support remains at 3960 (SPY395).
Overall we see little reason to shift from our core outlook that tomorrow will spark a strong directional trend into 12/16 OPEX (review here). For today we continue to anticipate the S&P playing back into 4000 as discussed yesterday.
Last week we saw indications that traders were selling SPY calls into & above 400. Conversely, yesterday our HIRO (real time options) data showed positive delta SPY trading into market weakness. This showed as call buying, which we speculated was short call covering from last week. Today we see that our SPY Call Wall has leapt higher to 415 (from 405), which implies traders were indeed cashing in those short calls.
Call selling above 400SPY/4000SPX was the behavior we monitored all through November, as shown below. This implies that traders indeed see 400/4000 as “fair value” for the S&P, and we may likely need a macro catalyst to warrant higher stock prices. In a similar vein one could look at the relative low we flagged in IV as traders happy to be short volatility (and/or not worried about downside) despite the S&P at this 4000 equilibrium. “The price is right”, so to speak.
We are obviously of the mind that the slew of data out this week will change this outlook. Our long term default view has been that equities will not stage a significant, stable rally until bond volatility subsides. For this reason we have been watching the MOVE Index (explainer here), which remains stubbornly near highs.
Below we have plotted MOVE (ATM Treasury Bond IV) vs VOLI (ATM SPY IV), and as you can see there is a clear divergence here, just as there was at the end of August. It was a hawkish Jackson Hole speech which triggered an IVspike at the end of August, and led a sharp 2 week like into the large Sep quarterly OPEX. Its really is a very similar setup here, with 2 weeks before 12/14 FOMC + 12/16 OPEX.
We reiterate that we have no forecast on how Powell + GDP/ISM/NonFarms will be received by markets. Our work here is to flag the possible price distributions out of events like this, and we continue to be view the downside as underpriced.
This was discussed in several of our recent notes, and can be clearly seen in our Risk Reversal indicator. This measures the relative IVof 30 days to expiration, 25 delta put – 25 delta call. During times wherein traders expect high risk, put values are bid up which results in our RR indicator having values down <=.10. As you can see we are currently up near -0.05 which coincides with readings of low fear (a.k.a. flat skew).
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3964 | 3967 | 395 | 11587 | 282 |
| SG Implied 1-Day Move:: | 1.08%, | (±pts): 43.0 | VIX 1 Day Impl. Move:1.39% | ||
| SG Implied 5-Day Move: | 2.86% | 4026 (Monday Ref Price) | Range: 3912.0 | 4142.0 | ||
| SpotGamma Gamma Index™: | -0.22 | 0.69 | -0.19 | 0.04 | -0.07 |
| Volatility Trigger™: | 3965 | 3995 | 397 | 11475 | 282 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 11650 | 290 |
| Gamma Notional(MM): | -196.0 | -272.0 | -874.0 | 5.0 | -477.0 |
| Put Wall: | 3600 | 3600 | 390 | 11000 | 279 |
| Call Wall : | 4100 | 4100 | 415 | 11650 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 3979 | 4012 | 401.0 | 10809.0 | 296 |
| CP Gam Tilt: | 0.95 | 0.87 | 0.76 | 1.45 | 0.73 |
| Delta Neutral Px: | 3902 | ||||
| Net Delta(MM): | $1,711,341 | $1,790,545 | $181,101 | $50,001 | $93,169 |
| 25D Risk Reversal | -0.05 | -0.05 | -0.05 | -0.05 | -0.05 |
| Call Volume | 465,600 | 230,640 | 1,680,105 | 8,850 | 647,948 |
| Put Volume | 881,685 | 484,004 | 2,362,056 | 6,380 | 708,482 |
| Call Open Interest | 6,569,514 | 6,539,919 | 7,686,061 | 68,540 | 4,970,038 |
| Put Open Interest | 11,433,054 | 11,472,793 | 12,920,341 | 60,933 | 6,843,187 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4100, 4000, 3950, 3900] |
| SPY: [400, 395, 390, 380] |
| QQQ: [300, 290, 285, 280] |
| NDX:[12000, 11750, 11650, 11500] |
| SPX Combo (strike, %ile): [(4151.0, 86.36), (4099.0, 94.6), (4076.0, 84.33), (4052.0, 91.56), (4024.0, 76.73), (4000.0, 76.74), (3965.0, 76.97), (3949.0, 83.54), (3925.0, 87.05), (3905.0, 86.41), (3901.0, 89.97), (3850.0, 85.93), (3834.0, 80.48), (3826.0, 79.61), (3806.0, 74.52), (3802.0, 89.49)] |
| SPY Combo: [409.37, 404.62, 389.58, 379.68, 391.95] |
| NDX Combo: [11646.0, 11437.0, 11472.0, 11889.0, 11066.0] |
