Futures are steady overnight, holding 4075. We are obviously anticipating high volatility today due to the 2pm ET FOMC. Key resistance is the 4100- 4115 (SPX Call Wall – SPY 410 Call Wall). We also flag 4050 SPX & 4065 (SPY 405 equivalent) as a current pivot area, and 4000 as major support.
The key levels heading out of today are quite prominent, particularly in SPY. Keep in mind that the SPY strikes will often hold notional values that are much larger than corresponding SPX strikes.
Bulls need to see a close above 4100SPX/410 SPY, which would likely invoke a test of 4200SPX/420SPY by the end of the week. 410 SPY is quite a large gamma strike, and therefore a push above that level would take some conviction.
At this time there is very little in the way of options positioning above that 4200/420, and at this point any sustained move higher would require call positions coming in at strikes >=4200/420. This is most easily detected by seeing the Call Wall(s) move to higher strikes (currently 4100/410). The Call Walls not shifting higher tomorrow is a bearish signal, regardless of price action today.
To the downside, a close below 4000/400 is the clear sign of further downside ahead. This is because below 4000/400 its mainly put positions as shown in the red box, above. A slide lower would likely correspond with a shift higher in IV, which further pressures the market. 3900/390 is the first large level of note below 4000/4000.
Given the levels above, we wanted to provide some sentiment here. We’ve written a few notes about our stance into FOMC (here & here), and they frame this idea that the market is unprepared for a hawkish tilt from Powell. This is not to say he delivers one – but we believe there is less resistance to a move lower vs a move higher. The huge January rally may have pulled forward post-FOMC gains, and raised the bar in terms of what Powell has to deliver to extend gains at the same pace.
To be clear, it’s unlikely that Powells remarks will deliver fresh S&P lows, but they could certainly lead to the asymmetric consolidation in stocks which had the largest gains over the month of January.
For this reason we have been of the view that the best risk reward may be in puts/put spreads in the names which have performed the best in January, for example: ARKK (+28% in Jan), TSLA (+45%), BYND (+30%). This could be spread against some long index/ETF exposure.
Ending on a bullish note, we are at an interesting inflection point in terms of volatility. If Powell delivers what the market is largely anticipating we may see a significant shift in volatility regimes. We’ve largely viewed implied volatility at these levels (i.e. VIX ~18) to be the “low end of the range” over the past year due to RV being +18. However, a clear end to rate hikes may usher in more market certainty which translates into lower RV & IV in the months ahead.
This would correspond with a MOVE Index < 100, which one would have to construed as a “risk on” signal.
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 4076 | 4058 | 406 | 12101 | 294 |
| SG Implied 1-Day Move:: | 1.02%, | (±pts): 42.0 | VIX 1 Day Impl. Move:1.22% | ||
| SG Implied 5-Day Move: | 2.87% | 4070 (Monday Ref Price) | Range: 3953.0 | 4187.0 | ||
| SpotGamma Gamma Index™: | 0.97 | 0.14 | -0.06 | 0.05 | -0.01 |
| Volatility Trigger™: | 4020 | 4025 | 402 | 11225 | 291 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 400 | 12000 | 290 |
| Gamma Notional(MM): | 331.0 | 263.0 | -497.0 | 8.0 | -84.0 |
| Put Wall: | 3800 | 3800 | 390 | 11000 | 280 |
| Call Wall : | 4100 | 4100 | 410 | 11425 | 300 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4037 | 4019 | 409.0 | 0 | 311 |
| CP Gam Tilt: | 1.29 | 1.15 | 0.85 | 1.8 | 0.94 |
| Delta Neutral Px: | 3982 | ||||
| Net Delta(MM): | $1,542,201 | $1,399,783 | $169,086 | $56,596 | $92,187 |
| 25D Risk Reversal | -0.06 | -0.05 | -0.04 | -0.04 | -0.04 |
| Call Volume | 456,910 | 465,165 | 1,500,815 | 4,841 | 569,901 |
| Put Volume | 774,216 | 781,005 | 2,464,418 | 4,330 | 870,208 |
| Call Open Interest | 5,636,094 | 5,677,914 | 5,977,511 | 62,885 | 4,484,305 |
| Put Open Interest | 10,103,370 | 9,945,107 | 12,840,990 | 58,777 | 7,599,948 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4100, 4050, 4000, 3900] |
| SPY: [410, 405, 400, 395] |
| QQQ: [300, 290, 285, 280] |
| NDX:[13000, 12000, 11500, 11425] |
| SPX Combo (strike, %ile): [(4276.0, 78.13), (4252.0, 90.48), (4223.0, 86.43), (4211.0, 77.54), (4199.0, 97.15), (4174.0, 92.5), (4170.0, 75.81), (4150.0, 97.85), (4142.0, 81.46), (4130.0, 76.39), (4126.0, 93.15), (4121.0, 76.24), (4113.0, 90.94), (4109.0, 79.29), (4101.0, 98.43), (4081.0, 83.49), (4077.0, 90.04), (4064.0, 90.81), (4060.0, 75.24), (4048.0, 90.51), (4032.0, 76.21), (4011.0, 76.24), (3962.0, 75.39), (3950.0, 85.68), (3909.0, 82.33), (3901.0, 91.99)] |
| SPY Combo: [408.92, 413.8, 418.67, 411.36, 416.24] |
| NDX Combo: [12320.0, 11703.0, 12525.0, 12005.0] |
