- Rallies should be categorized as “short covering” and subject to failure
- Volatility should remain elevated until/unless the market closes >4000, the strike at which we see major resistance. 3700 is our major support line into 7/15
- July 15th & 20th are important dates to market due to large equity & VIX expirations
- July 27th is a key FOMC rate decision
Futures are flat, trading near 3825 ahead of todays 2pm ET FOMC minutes. Our SG vol estimate signals more ~1% swings are in store for today. It’s likely most of the volatility shows >2pm ET. Resistance shows at 3855 (SPY 385), then 3900. Support lines up at 3800, then 3749.
3800 continues to form as an important strike as positions build at that level. Key for our models is that the Vol Trigger (or gamma flip marker) is positioned at that strike. The implication is that this level is akin to “fair value”. Volatility should compress while the market trades above 3800, and expand when below 3800. Our base case in this situation (SPX >Vol Trigger) is for volatility to decline, which draws a market tail wind. 4000 remains our major resistance line into end of month.
Also at “fair value” is our Risk Reversal metric. At current readings near -0.08 it suggests puts have some room to be sold, but are not particularly expensive, either. This is compared to recent weeks wherein the market was at recent highs, and skew readings suggested puts were cheap.
To the downside, 3700 remains the Put Wall and significant short term support. We mentioned yesterday that volatility should pick up on a break of 3800, and that may lead to a quick test of 3700. While yesterday volatility spiked on a break of 3800, the market found support near 3740. We wanted to flag this level as one wherein the market has found support several times in recent weeks (shown below).
Finally, we wanted to highlight VIX positions which continue to build in a similar fashion to June. Below is open interest for July 20th, and you can see there are large put positions forming in the 20-25 range, with large call positions in the 30-35 area. This implies that 25-30 may the the VIX range into mid July, and we’d be watching for S&P highs/lows to sync with VIX at the range lows/highs. (For example SPX testing 4000 with VIX under 25 may make 4000 more significant resistance).
Ultimately it’s going to be macro signals here which dictate market direction. We continue to believe that lower-lows are available for markets after large puts were rolled down in June. However, due to negative gamma dynamics, if the market trades higher we must respect that movement as dealer flows should amplify the prevailing market trend.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
|1.27%,||(±pts): 49.0||VIX 1 Day Impl. Move:1.73%|
|SpotGamma Imp. 5 Day Move:||2.71%||3825 (Monday Ref Px)||Range: 3721.0 | 3929.0|
|SpotGamma Gamma Index™:||-0.67||-0.85||-0.17||0.01||-0.05|
|SpotGamma Absolute Gamma Strike:||4000||4000||380||11150||300|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||3961||3983||0||0||0|
|Put Wall Support:||3700||3700||370||10500||280|
|Call Wall Strike:||4005||4005||382||11150||292|
|CP Gam Tilt:||0.78||0.68||0.61||1.14||0.75|
|Delta Neutral Px:||4035|
|25D Risk Reversal||-0.08||-0.07||-0.07||-0.08||-0.08|
|Call Open Interest||5,522,560||5,450,689||6,475,128||61,680||4,215,398|
|Put Open Interest||9,472,540||9,374,343||10,133,453||58,391||6,134,902|
|Key Support & Resistance Strikes:|
|SPX: [4000, 3900, 3800, 3750]|
|SPY: [385, 380, 375, 370]|
|QQQ: [300, 290, 285, 280]|
|NDX:[12500, 12000, 11250, 11150]|
|SPX Combo (strike, %ile): [3798.0, 3749.0, 3714.0]|
|SPY Combo: [378.57, 373.62, 370.18]|
|NDX Combo: [11493.0, 11296.0]|