Futures are up slightly to 4190. Data is again little changed for today, with primary resistance at 4204, then 4250. Support shows at 4160 (SPY 415) – 4150, then 4110 (SPY 410).
While the last few sessions have been rather quiet, things should certainly get more interesting today.
Powell’s 10AM ET speech is the main event, which should trigger a large directional move in markets. 420 SPY is the most prominent level in our data as shown below, and the key pivot line for today. If markets can get up above that 420 line they should be fairly well supported into the close. Note that we see roughly 20% of total S&P gamma expiring today.
This fairly large expiration suggests that the price action around 4200 should remain fluid into next week, backing our view that an extended directional move sets up into month end. Over that more extended time frame we continue to see 4300 as major resistance, and 4000 as major support.
The key metric to watch today will be implied volatility. Shown below are VIX curves with last Wednesday in blue, when the VIX was testing 20. You can see that todays curve (black) is at a premium due to the Jackson Hole event-vol. Should Powell come off as dovish we’d anticipate a quick reversal in todays more elevated vol readings, back to those August lows.
A sharp drop in IV likely fuels a rather quick test of 4300 for early next week. It’s at 4300 wherein we see call positions increase, and linked to that should be a reduction in market volatility.
In yesterdays AM note we outlined the more aggressive bear case. We think that based on current market positioning, a hawkish read on Powell could spark a rather violent downside move. This move would be fueled by both a demand for put options, and increased IV. This ignites the delta/gamma/vanna feedback loop which pressures markets lower.
This is delta from new put trades, gamma hedging from existing put options, and vanna from increasing put values due to higher IV.
|SpotGamma Proprietary SPX Levels||Latest Data||SPX Previous||SPY||NDX||QQQ|
|SpotGamma Imp. 1 Day Move:
Est 1 StdDev Open to Close Range
|1.06%,||(±pts): 45.0||VIX 1 Day Impl. Move:1.37%|
|SpotGamma Imp. 5 Day Move:||2.77%||4228 (Monday Ref Px)||Range: 4111.0 | 4345.0|
|SpotGamma Gamma Index™:||0.56||-0.15||-0.06||0.04||-0.05|
|SpotGamma Absolute Gamma Strike:||4000||4000||420||13250||325|
|Additional Key Levels||Latest Data||Previous||SPY||NDX||QQQ|
|Zero Gamma Level:||4176||4166||422.0||12345.0||328|
|Put Wall Support:||4000||3900||400||11000||300|
|Call Wall Strike:||4300||4300||420||13250||325|
|CP Gam Tilt:||1.16||1.03||0.84||1.43||0.77|
|Delta Neutral Px:||4133|
|25D Risk Reversal||-0.06||-0.06||-0.06||-0.06||-0.07|
|Call Open Interest||6,056,220||6,064,018||7,182,446||60,814||4,235,730|
|Put Open Interest||10,600,601||10,318,914||12,585,507||76,453||7,351,258|
|Key Support & Resistance Strikes:|
|SPX: [4300, 4200, 4150, 4000]|
|SPY: [430, 420, 415, 410]|
|QQQ: [330, 325, 320, 315]|
|NDX:[14000, 13250, 13000, 12500]|
|SPX Combo (strike, %ile): [4301.0, 4200.0, 4250.0, 4275.0, 4204.0]|
|SPY Combo: [429.58, 419.51, 424.54, 427.06, 419.93]|
|NDX Combo: [13249.0, 13328.0, 13525.0, 12920.0]|