October 20, 2022

1:55 pm

SPX has tumbled beneath Short-term support at 3672.00 for the second time in two days and has made a lower low.  The next support lies at 3650.00, where short gamma intensifies.

Zerohedge informs us, ” Short term options speculation mania

Regular readers of TME are familiar with the explosion of extremely short term options that we have covered over past weeks. As a reference GS pointed out the phenomena in 2019 already (here), but things have become much more extreme lately. Nomura’s quant guru, McElligott, explains the latest developments in this speculation game, now mostly practiced by institutional traders and not the retail day trading community.

“…we see the “big boys” having surpassed the prior Retail YOLO set (which had been the largest users of the of the 0-1DTE stuff), and have become full-tilt DAY TRADERS, using the certainty of Dealer hedging flows that their orders create to then amplify and “juice” the intended directional market move…before closing-out positions mere hours later by EOD.” Some stats to ponder:

1. On 9/20/22, 53% of total SPX options volume was from 0 days-til-expiration options—and 65% of the overall was from 0-1DTE options combined

2. 46% of SPY options volume was from 0DTE’s alone on 9/19/22—while on 9/30/22, 61% of total SPY options volume that day was from 0-1DTE’s

3. For QQQ, we saw 0DTE’s make a high print of 41% of overall options volume on 10/14/22—with 56% of the overall QQQ options volumes that same day coming from 0-1DTE’s alone

Most have never run a big volatility book, and even fewer have managed these type of extreme options risks on a daily basis. This is magnifying an already unstable market that is desperate for liquidity…”

 

1:20 pm

The Ag Index may have put in its Master Cycle low yesterday, on day 260 of the Master Cycle.  This may be the end of the correction which was much milder than I had anticipated.  Trending strength returns next week and maintains through November.   There may be a pullback around the Thanksgiving Holiday, then the uptrend continues through the end of the year.

ZeroHedge reports, “Drought closed a portion of the Mississippi River earlier this week, as the major waterway has been an absolute nightmare for tugboat captains to navigate.

A stretch of the Mississippi River just northeast of Memphis, near Hickman, Kentucky, was closed on Monday because water levels reached record low levels. This caused a logjam of vessels and barges. And it’s the third time a portion of the river has been shuttered in weeks.

We’ve reported dangerously low water levels have left farmers with a barge shortage as freight rates hyperinflate. Some farmers have piled up beans and other crops as logistical pipelines to transport farm goods from the Heartland by barge to export terminals in the US Gulf Coast are paralyzed due to extraordinary conditions on the Mississippi. ”

Michael Snyder sounds the alarm, “I am trying to sound the alarm about this as loudly as I can.  The global food crisis just continues to intensify, and things are going to get really bad in 2023.  As you will see below, two-thirds of European fertilizer production has already been shut down, currency problems are causing massive headaches for poor nations that need to import food, global weather patterns continue to be completely crazy, and the bird flu is killing millions upon millions of chickens and turkeys all over the planet.  On top of everything else, the war in Ukraine is going to restrict the flow of agricultural and fertilizer exports from that part of the world for a long time to come, because there is no end to the war in sight.  In essence, we are facing a “perfect storm” for global food production, and that “perfect storm” is only going to get worse in the months ahead.”

 

9:00 am

Good Morning!

SPX futures swung from an overnight high of 3718.70 to negative this morning.  It has challenged short-term support at 3670.00 and may confirm the bear trend by declining beneath it.

In today’s options expiration, Maximum Pain for options investors is at 3695.00.  Long gamma may begin at 3700.00 and is confirmed above 3750.00 in a lightly populated options market.  Short gamma may begin at 3685.00 and intensifies at 3650.00.  There is a war of options at 3700.00 in tomorrow’s op-ex with 47,550 put contracts vs 37,161 call contacts at the 3700.00 strike.  What makes options such a troublesome market is that hedge funds are buying one-day and same-day options that makes trading rather fluid, depending on the direction.  The difference between long gamma and short gamma is becoming smaller, which intensifies the moves.

ZeroHedge reports, “US equity-index futures have swung wildly in the illiquid, overnight session, and after earlier dropping as much as 0.5% following the rapid move higher in US Treasurys and UK gilts, they have since erased all losses to trade near session highs, up 0.3% with Nasdaq futures also up 0.2%, as investors the surge in yields fizzled and as investors assessed disappointing earnings from Tesla against resilient reports from AT&T and IBM. Oil jumped, Chinese stocks spiked (but then fizzled) and both the offshore and onshore yuan rose after a Bloomberg report sparked market optimism that Chinese officials are mulling shortening the amount of time people coming into the country must spend in mandatory quarantine, an implicit tempering of the country’s much maligned coved zero policies. The US dollar slumped as sterling spiked as UK Prime Minister Liz Truss began meetings with a key Conservative party official, stoking speculation that a change in leadership may be afoot. US 10-year yield holds steady at about 4.12%.”

 

 

VIX futures made a new overnight low at 30.58, but have since turned positive.  I am highlighting a new Head & Shoulders formation that may be triggered in the next day or tow.  The upper trendline may actually be the Lip of a Cup with Handle formation that has a similar target as the old Head & Shoulders.

ZeroHedge proclaims, “Nomura’s Charlie McElligott began his must-read note overnight by warning “go home options, u r drunk!”

And ‘drunk’ they are, as the cross-asset strategist details below a few market-structure / behavioral dynamics contributing to the outrageous intraday volatility of the past week+ period in US Equities, alongside a few stunning charts / metrics…

WHY THIS WEEK HAS BEEN SUCH A HOT-MESS OF SWINGS, FUELED BY AN UNUSUALLY PROFILIC AMOUNT OF $DELTA TO TRADE INTO OP-EX:”

 

TNX made a new high at 41.80 this morning, but may be ready for a short-term reversal over the weekend.  It must relieve the overbought issue, but not a change of trend.  That may limit the pullback either to Intermediate-term support at 36.85 or the 50-day at 34.40. Trending strength may return by mid-week.

 

USD futures consolidated this morning after yesterday’s jump out of the Master Cycle low.  The Cycles Model suggest the USD may be gathering strength this weekend, suggesting a large flow of incoming money from overseas countries.  Europe is heating up, politically and economically, driving liquidity into the USD>

 

 

 

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