June 16, 2023

2:13 pm

On Tuesday I mentioned that the opportunity for a long-term position in the Ag Index was ideal.  The timing could not have been better, with a 7.8% gain in only three days.  Note the long-term target which may be realized in the next 12 months.

ZeroHedge remarks, “A lot of the experts didn’t think that this would happen. 

Once the pandemic subsided, global supply chains were supposed to return to normal.  But now “hundreds of drugs” are in short supply in the United States, and even CNN is admitting that we are in the midst of “the worst food crisis in modern history”.  As I did research for this article, I was stunned by what I discovered.  Things are worse than I realized.  I knew that a lot of drugs were in short supply, but it turns out that there have been shortages of many of our most basic antibiotics since last October, and now Pfizer is telling us that several types of penicillin will completely run out later this year…”

 

2:00 pm

SPX may be headed for a flat close, at best.  The energy for this rally may be gone, with a potential reversal in the making.  Rallies that have expended this kind of energy in the past three weeks are often subject to reversion to the mean.  Take profits while you can.  Mean reversions can be wicked.

ZeroHedge remarks, “Ahead of last month’s expiry, we quoted Goldman’s derivatives guru Brian Garrett who correctly predicted that the market had felt like a coiled spring (“tightest 1 month hi/low band in years”) and – lo and behold – 4 few weeks later and the market has soared more than 200 handles higher, trading at the highest level since early 2022.

Fast forward to today, when in his latest opex discussion (available to pro subscribers here), the Goldman trader looks at what may happen next and writes that a lot of heavy lifting has happened and with SPX ripping north of 4200 in a very short period of time, “there is VERY little option gamma to potentially trade against this market momentum.” Indeed, as we warned last week, dealers are long left tail and “not long” right tail, especially after today’s June expiry.”

 

7:30 am

Good Morning!

NDX futures are consolidating beneath yesterday’s high.  The monthly Cycles Model suggests the rally may have run its course.  Stay alert for a possible reversal.

Today’s am options expiration suggests yesterday’s blow-off rally may have been an overshoot.  Long gamma is most active between 15000.00 and 15125.00.  Short gamma begins at 14800.00.

ZeroHedge comments, “Heading into this afternoon’s blow off top, which saw the S&P close at the highest level since April 2022 after 6 straight days of gains (the longest winning streak since Nov 2021), the post-FOMC gamma squeeze (because apparently nobody believes or is scared of Powell any more) was in full blast, not just across the vanilla Greek space but especially 0DTE, with the most traded option of the day being the SPY 440 (S&P4,400) Call expiring today, and for good reason: opening at 14 cents, it was up 3,050% to $3.15 when we snapshotted it just before the close…”

 

SPX futures are also consolidating beneath yesterday’s afternoon high.  An important monthly Cycle may have just completed.  Stay alert for a reversal.

In today’s op-ex, the am expiration shows heavy call volume from 4250.00 to 4400.00.  But put volume is growing.  Yesterday’s gamma wall stopped at 4430.00 with call volume substantially reduced above 4400.00.  The pm expiration gives the nod to calls between 4325.00 and 4400.00.

ZeroHedge reports, “Following the largest ever S&P call-buying day in history…

… which sparked a marketwide gamma-squeeze that pushed the market higher for the 6th consecutive day to the highest level since April 2022, US equity futures and global stocks were headed for the best week in more than two months, buoyed by bets on Chinese stimulus and exuberance surrounding artificial intelligence firms. After closing above 4,400 on Thursday, S&P futures were up 0.1% at 7:40m ET, recovering from an earlier dip and trading near session highs. The MSCI World Index has climbed 3% this week, the most since the end of March. Asian stocks staged a broad rally on Friday and European equities climbed. Treasury yields climbed across the curve, most steeply at the shorter end on recession fears. The Bloomberg dollar index reversed earlier gains while gold prices rose. Oil prices were flat, while iron ore is also edging lower today despite being poised to climb this week.”

 

 

VIX futures are consolidating near their closing high.  A rising VIX in a rising stock market suggests a reversal may be imminent.

Next Wednesday’s op-ex shows short gamma beneath 21.00 and long gamma above 22.00.  This is consistent with long gamma in stocks.  The question is, can this carry over to Wednesday?

ZeroHedge comments, “Boom

The options chase printed another high yesterday as investors must show they have long exposure in this market. 1.8m call options traded in the SPX. We have been pointing out the spot up, vol up market over past days. This creates powerful market dynamics.”

 

 

 

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