Futures probed lower to 3885 overnight, but have recovered to 3915. Resistance shows in the 3950 – 3960 (SPY 415) range, then 4000. Initial support is at the 3900 Put Wall. The SPY Put Wall has shifted lower to 380 which we downgrades the support strength we’ve seen at 3900-3910 (SPY 390, previous Put Wall).
The Put Walls were under pressure yesterday, and held. With the SPY Wall shifting to 380 we now have less confidence in that 3900-3910 (SPY390) level as support. This is due to the fact that our models now read the SPY wall as 2x the notional value of the SPX wall (shown here).
In this put dominated market, there was once again there was relatively high volatility yesterday. And, once again, the volatility seemed contained with put buying seemed rather soft. In accordance our HIRO measures for SPX/SPY/QQQ were all positive on the day, which suggests that call buying and/or put selling was the predominant flow.
We did see fairly high volumes at the 390SPY/3900SPX strikes, but only the SPY Wall rolled lower. This roll down appears to be driven by a minimal open interest shift. In other words, levels changing seem to be from a rather gradual progression of levels wearing down rather than large, dominant position shifts.
To change this dynamic, traders need to step in and sell vol and the timing is not quite ready for that.
The first short term catalyst is when Powell speaks tomorrow at 9:10AM. This will certainly be a driver of markets in the very short term. Powell could easily spark a move to 4000 or 3800, but any move from this is likely just “a trade” and not a harbinger of the next major directional move.
For that, we turn to the huge drivers next week: CPI & large OPEX, and then 9/21 FOMC.
The positioning here all reads like recent March & June quarter end expirations. It’s a soup of catalysts all playing into a market which holds high levels of negative gamma and high implied volatility. Expect big, violent, swings.
The CPI release next week is likely to provide us with one last big directional swing into OPEX, and then we get a pause into 9/21 FOMC.
From a positioning standpoint, the thing that still stands out to us is the lack of tail demand. For most of ’22 we’ve been of the view that equity markets cannot maintain a sustained rally unless bond volatility subsides. For this we reference the MOVE Index (blue), which is currently back to highs. Clearly bond volatility has a lot to price in with 2-3 major data points over the next 2 weeks. However the dichotomy between that growing bond angst and the sleepy equity IV(purple, orange, teal) readings should be noted.
Major, limit down moves are generally sparked from credit market issues and they do not have to be sourced from US markets. We feel like there are a several “we’ve never seen this before” type moves, and that can cause dislocations (ex: our thread on LTCM, here).
| SpotGamma Proprietary SPX Levels | Latest Data | SPX Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Ref Price: | 3910 | 3908 | 390 | 12011 | 293 |
| SG Implied 1-Day Move: | 1.07%, | (±pts): 42.0 | VIX 1 Day Impl. Move:1.68% | ||
| SG Implied 5-Day Move: | 2.92% | 3925 (Monday Ref Price) | Range: 3811.0 | 4040.0 | ||
| SpotGamma Gamma Index™: | -1.35 | -1.25 | -0.39 | -0.01 | -0.18 |
| Volatility Trigger™: | 4000 | 4000 | 411 | 12850 | 320 |
| SpotGamma Absolute Gamma Strike: | 4000 | 4000 | 390 | 12500 | 300 |
| Gamma Notional(MM): | -769.0 | -798.17 | -1954.0 | -3.0 | -1178.0 |
| Call Wall: | 4005 | 4005 | 402 | 13250 | 340 |
| Put Wall: | 3900 | 3900 | 380 | 11000 | 290 |
| Additional Key Levels | Latest Data | Previous | SPY | NDX | QQQ |
|---|---|---|---|---|---|
| Zero Gamma Level: | 4068 | 4097 | 408.0 | 12348.0 | 323 |
| CP Gam Tilt: | 0.69 | 0.63 | 0.51 | 0.79 | 0.43 |
| Delta Neutral Px: | 4087 | ||||
| Net Delta(MM): | $1,782,209 | $1,682,756 | $210,304 | $52,123 | $117,994 |
| 25D Risk Reversal | -0.08 | -0.06 | -0.07 | -0.08 | -0.08 |
| Call Volume | 495,296 | 484,792 | 2,047,597 | 7,619 | 845,567 |
| Put Volume | 867,665 | 974,825 | 3,221,328 | 8,884 | 1,465,875 |
| Call Open Interest | 6,240,514 | 6,299,057 | 7,616,385 | 65,013 | 4,500,577 |
| Put Open Interest | 10,936,146 | 10,389,375 | 12,816,604 | 81,820 | 7,676,596 |
| Key Support & Resistance Strikes: |
|---|
| SPX: [4000, 3950, 3900, 3800] |
| SPY: [400, 395, 390, 380] |
| QQQ: [300, 295, 290, 285] |
| NDX:[13250, 13000, 12500, 12000] |
| SPX Combo (strike, %ile): [3902.0, 3801.0, 3852.0, 3953.0, 4000.0] |
| SPY Combo: [389.98, 379.82, 384.9, 395.06, 399.75] |
| NDX Combo: [11891.0, 11687.0, 12300.0, 12095.0, 11807.0] |
