SPX Tech Anal: "Imma let you finish, George, but time for some hot girl moves first!"

Tl;dr - Aug could be spicy. If we get stuck below vol trigger, we may drift downward into opex (8/18). If we manage to get above it, we might remain in the 4,500-4,600 zone.

What a difference a month makes - folks may want to check out the July piece as it is important backdrop for August. (Also, I really need to get better at actioning these readings of the tea leaves … :no_mouth:)

Everyone and their favorite furus were expecting a pullback because we were so overextended. Which we got last week. A 2% SPX drawdown after a 21% rally since March lows may not satisfy the market gods though, so it’s reasonable to expect a bit more of a drawdown.

Tomorrow will likely be pivotal:

  • If we manage to close over the 20SMA and over vol trigger (level for which we will know in the morning), we may end up futzing around in the 4,500-4,600 zone into Aug opex (8/18). Since positive vanna and charm feedback flows start now. The effect will be less muted than quarterly opexes because there isn’t as much OI expiring this time around. Thinking we will be range bound even if we make it above the vol trigger because there really isn’t anything by way of call levels over 4,600, suggesting market really feels this is the top. For now. Will track Call Wall to see if this changes.

  • If we don’t manage to close over the vol trigger, MMs will tip the cow over and keep it rolling downhill, even as market likely sells off because we are still below 20SMA. This is where gamma (and resulting delta) hedging overwhelms whatever vanna or charm effects there might be. If this were to happen, we could fall all the way into opex, i.e. for the next 2 weeks. Was surprised to see the Put Wall come up so much last week, and then so easily breached; not sure what to read into that.

Using the SPX gamme levels in the image below, we’re basically trying to get from the region with the negative bars to the region with the positive bars over the next day or so - that’s where the gamma kinda starts to straighten out. Ofc the option complex will change over the next few weeks, so we’ll have to keep an eye on this.

If we did end up in a negative gamma cycle, MMs might stop tipping the cow once we reach the 4200 level.


Some important dates this month:

  • CPI - Aug 10. Might be a damp squib.

  • Michigan Sentiment - Aug 11. Market seems to have reacted to this the last few times.

  • Opex - Aug 18. Our dear pilot point. If we are in the 4500-4600 zone, I think we go lower the week after. If we are lowe than this, we will probably have one good week after opex, and then resume the downward move. But more on tihs in two weeks, depending on where things are.

  • Jackson Hole - Aug 26. It was a big deal last year. The biggest deal. Yet no one seems to give a sh*t about what Powell has to say these days. We’ll have to wait to see the vol complex for clues on whether he’s solidly in the “ok boomer” forgotten zone now for now.


SPX barely managed to stay above vol trigger yesterday, and fell back below today’s morning level of 4520. Currently at 4466. This is below the Put Wall of 4500 also. Because we are in negative gamma territory, MMs are exacerbating moves. VIX going up quite a bit today is also not helping - it increases the hedging requirements by MMs, which adds to the moves.

Good news is the 4400 put level is quite beefy, and unless there is a macro-news induced flush, we should not breach it easily.

Note that this negative gamma stuff works both ways - if CPI on Thu is not bad, Vol will dissipate and that’ll shoot markets up as all the hedges … are dehedged.


Interesting day. Couple of things to note:

  • We started it with Call Wall at 4600, and both Put Wall and vol trigger at 4500… to be reliably green, we need to get over the 4500 line.

  • CPI was right on the money, and market responded positively to it at first. Markets were also buoyed by the event vol unwinding. It is telling, then, that we were not able to get over 4500 with this support; the selling since has been sustained.

  • What complicates this is the great amount of 0DTE movement. Note that most 0DTE players are tutes, and it seems like they are taking advantage of negative gamma by regularly tilting the cow, knowing MMs will join in and compound the movement. This was today as of three hours ago, and we can see the drop since:

    And this was yesterday:

  • Notably, this is the week before opex. The “magnet” that levels play is in full effect. Right now, 4500 is the magnet, though 4400 can take over if we make it past 4450:

  • Finally, VIX is up only marginally and bonds showed no indication of a flight to safety (i.e. drop in yields), so the sell-off does not seem to be systemic - mostly nervous/funny business:

Overall, markets feel like a beachball held under an ice shelf. It keeps trying to get back up, hits the layer of ice and loses momentum. And periodically keeps getting dragged down under by 0DTE.

To get out of this pattern, markets would have to snap to a different level than 4500 outside normal hours, as regular hours is when all the hedging flows and 0DTE happens. Otherwise it is quite likely that we’ll have larger movements intraday (like +1% and then -1% yesterday) but generally end up mean reverting to the previous major level, maybe all the way into opex next Fri (8/18).

Personally have no positions to play this as trying to play “both sides” while mostly afk is a great way to get hurt on the way up, and on the way down. :grimacing:

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TLDR: I am expecting a rally because we are at some key supports with some strength coming back, but the trend has changed and all rallies should be sold for now.

On the weekly, we have 2 solid red body candles with no declining volume, although it’s not increased volume from the previous green weekly candles. This makes me think that we either have much more selling to go or this will get bought up quick. I think we have more selling incoming because it seems like markets do not like the inflation data and think that the Fed will continue to raise rates. Maybe this Wednesday FOMC mins will have us shit down even lower. Overall, I like the follow through on the big weekly candle and I think there’s more to go.

On the daily, we have continued moves down with increasing sell volume and a weaker buy volume Friday. The CPI data sold off the markets hard and it seems like markets are selling every rally. Overall, daily looks bearish, but the downside seems to be slowing. We’re also at the previous 2 peaks so I expect this level to be a strong ass support to break.

On the hourly, we have a big bullish divergence on the RSI and MACD. Maybe this is showing that sellers are weakening and we’re going to get a rally or it means that we have more to down to the downside. But looking at the QQQ and SPY, they are each at huge supports and because of how far we’ve moved down with no solid pullback, I expect us to not break the support and rally up. Also, we are seeing a slowing of each lower low and bottom wicks.

Another bullish sign that I’m seeing is that the equal weight SPX is not forming new lows, showing that the underlying markets are solid. Gives me more confidence that we are not gonna shit through this support level for now.

Some bearish points is that the dollar is looking strong again, maybe because earnings weren’t as good as expected? Idk the exact mechanics because I’m gay and retarded but whatever.

One thing to watch out for are the yields. They’re back to spiking back up and almost forming new highs. The 10 year is almost at new highs and 2 year is inching closer. If we form new highs on these, I don’t expect markets to be happy and we’ll be heading much lower.

Overall, I am bearish, but expect some sort of rally given the supports and massive selling. Maybe buy into Wednesday FOMC mins and then sell? Who knows, but I expect us to move down lower because we are entering the weakest season of stocks and the markets are due for a pullback anyways. Good luck all, maybe I’ll do another update midweek but most likely gonna do it sometime on the weekends.


Opex week in a negative gamma environment! Should be interesting.

SG did not publish a morning note today, so going by numbers from Friday’s close - Call Wall is at 4600, Put Wall is at 4400, and Vol Trigger was at 4485. Recall that put wall was at 4500 until Thu, and has moved lower - this has traditionally been associated with room to move lower too. 4500 will continue to play the role of the magnet for now, as we have not managed to move far awa enough from it:

In terms of technicals, we’re between the 20SMA and 50SMA.

While the negative gamma may cause sharper moves compared to two weeks ago, not expecting a major drop because:

  • there’s been a bit of vol suppression given vixpiration is on 8/16
  • no signs of stress in HYG or MOVE
  • there’s a brickton of puts, and any move lower will cause folks to monetize them, which adds support

Putting all this together, my expectation for the next few days is for SPX to rattle between 20SMA and 50SMA, but eventually mean revert back to the 4500 level.


RIP… 20SMA did not hold, and reducing my confidence in the retracement. Sometimes it feels like a fool’s errand to try and read the technicals when record 0DTE does its bull-in-a-china-shop routine almost daily. Nevertheless, the underlying positioning still is what it is, and 0DTE allowing, might still be of utility.

VIXpiration is tomorrow morning. This should allow VIX to move from freely.

If VIX goes up, the negative gamma environment we are deep in (vol trigger at 4485 vs SPX close of 4437) will force quite a bit more hedging by MMs. This will pull us down, as we are in put heavy territory now. Of course, the opposite happens if VIX dies more - might provide nice tailwind.

Note that there is an important difference in degree of movement between the usual situation of (VIX up → marrket down) and what we currently have on our hands:

  • VIX down → MMs need to hedge less for the puts we are swimming in → MMs close short positions (mostly futures) → SPX goes up more than what is implied by the underlying correlation with VIX
  • VIX up → MMs need to hedge more for the puts we are swimming in → MMs open more short positions to remain delta neutral → SPX goes down more than what is implied by the underlying correlation with VIX

Hence the characterization of “exacerbates,” “compounds” etc. that we use for MM activity around this time of the month during negative gamma environments.

This is all to say that I’ll be watching the VIX more closely than usual as it’ll signal which way momentum is.

While premature to think about next week, as the outcomes will vary quite a bit depending on whether we end up above or below 4500, it is interesting to note that if we breach 50SMA conclusively, we will likely keep falling to the 100SMA because :algos:. Which then brings us closer to the JPM collar put strike of … 4215. Wouldn’t that be amusing. :sweat_smile:

Btw, @Gunshyraqcity you’d requested a broad overview of OI and flows for calls and puts, but at this time (T-3 to opex), that will distract as the play is happening right around the strike price, and the overall option structure matters much less. Let’s punt that discussion to the weekend, when it will provide useful intel on how things might play out post-opex.

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Finally, a spicy opex week, after a long time!

Normally, this is where I’d turn bullish, at least for the short term, for two main reasons:

  1. SPX is starting to dip into oversold territory, down 5% in 3 weeks. And NDX is also down 7%. Reasonable to expect a tapering off of the selling, since this still seems to be more of a technical correction than a change-in-reality induced selloff.

  2. We’re swimming in a decent amount of index puts, which will go poof by the end of the day when they expire. We’re in a net put zone (more blue puts than orange calls), and negative gamma which made MMs short more, as we moved lower. That means that when all the blue stuff expires, it should result in a move up as the short hedges are unwound.

Here’s what gives me some pause:

  1. The size of the option expiry is not that big compared to previous months, or next month, so the kick we might get is weak.

  2. The bond yields of 5Y, 10Y, 20Y and 30Y have gone up 9-11% over the last month - very likely resulted in draning of liqiudity from equity markets

  3. There’s nervousness around China, with various contagion risks. The impact of the various pathways - internal recession, currency devaluation, ad hoc stimulus - is not clear, but it all adds to volatility

  4. DXY has also been on an upward march, which isn’t helping the market either:

  5. Finally, 0DTE… that shit’s been wild. Leaving some SG tweets below if you are interested in the details; in short, they have played an outsized role in the downward moves this week. We have no idea which way these tutes will tip the cow next week. Though it’s fair to say that while we remain in negative gamma territory, tip the cow, they shall.

I’m keenly looking forward to what the option structure looks like on Monday, after the dust from today has cleared out. Where the call and put walls are, we well as vol trigger, will provide hints as to whether George can start chilling again, or hot girl still has some more excitement for us as we get into the waning part of summer.

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So you’re not expecting a bigger pullback ? Nasdaq is currently about- 6% from it’s recent high.

Acttually, I am not feeling bullish yet precisely because I think a continued pullback is still quite possible, given the five things listed under reasons for pause. Feels like there is a bit more selling to do, if we are to have a nice Q4 rally.

Green day. Likely a combination of post-opex dehedging of all them puts (see #2), and a general breather after a sustained 3 week fall.

Given that we just had opex, flows won’t really matter for now, so we can look at option positions mostly for signalling purposes. We started the day with call wall at 5000 (:face_with_raised_eyebrow:) and put wall at 4300 (also :face_with_raised_eyebrow:) so not really helpful for signalling either. Vol trigger was right at 4400, which is where we ended the day, but again, all that positive/negative gamma shouldn’t really be coming into play yet.

Other signals are somewhat confusing. Bonds fell (yields rose) pre-market but was mostly flat for most of the trading day. VIX didn’t move much either, and neither did DXY. Almost like everything is in a holding pattern.

Also interesting - IWM (the real-economy companies) - bounced right off its 100SMA and trendline. Nice supportive move there. Shall we see IWM go back to the top trendline, or will it form the second shoulder and resume its move downward? Will be watching this closely.

For now … barring major 0DTE action, its possible the market moves up to where the 20SMA and 50SMA will meet, around 4450. Possibly by end of day Wed, when NVDA earnings are released. Not to overplay the significance of this too much, but it could signal sentiment for the entire market - bullish or bearish. Will therefore read tea leaves again on Thu.

Note that Jackson Hole is Friday, and there is event vol associated with it. If JPow does not spook markets, this will also help push markets higher after. Between NVDA and JH, we could have decent clues on what happens next week, too.


TA and/or flows won’t be that helpful until tomorrow after JPow is done at Jackson Hole, given how much people are watching for what he says, but we can always prep and discuss what we need to keep an eye out for.

First, we have to admire the TA situation (despite what I said about it not being helpful) … SPX touched the 20SMA/50SMA confluence and then fell like a hammer. Total engulfing candle, which is bearish. NDX did the same. Unclear if this is about tomorrow though or “sell the NVDA news”, which is unfortunate. And IWM is tip-toeing on that 100SMA and trendline.

Right now, vol is pretty elevated, and we are in fairly deep negative gamma territory - vol trigger 4430 vs SPX close of 4376. This suggests we are unlikely to have a quiet Friday tomorrow. Rather, we should see some nice moves tomorrow:

  • If the speech is a nothing burger, all that vol will dissipate, and markets should respond positively. The negative gamma should help a bit, propelling it up to the 4450ish level.
  • If he says stuff, like “3% could be the new 2% in 2025”, likely between the lines than overtly, markets will not like that one bit, and may touch 4300 by the end of the day. After all, VIX is already high, and negative gamma just makes the roll down faster.

I think the “tell” will be the long end of the yield curve. Let’s keep an eye on the 10Y and older vintages. There is a possibility that we have a whiplash day too based on what he actually says - we see green in the first half as vol unwinds, and then markets go down into close anyway, if bonds keep falling.

So… two things to keep an eye on - bond yields, and VIX.

Where we end up tomorrow is likely to set the tone for moves into the large Sep opex (9/15). Big picture, the option flows start picking up steam next week, and we don’t really have any major data release next week.

  • If we end around 4450, I feel like we end up green into Sep opex, as option flows become supportive in a positive gamma environment.
  • Conversely, if we close red, we could touch 4200 by opex. Or worse if 0DTE weaponized gamma returns with a vengeance.

May the odds be in our favor tomorrow. :pepepray:


Welp, this turned out to be precisely incorrect. We pinned 4400, which is right down the middle of the either ends I was expecting.


Will have to regroup Monday…


@The_Ni I thought this tweet might interest you a little https://x.com/mr_derivatives/status/1695453362458968424?s=46&t=HLVIAKvA6cNDRhmNGlXAAg

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We’ve had two green days back to back, but we have not dug our way out of that engulfing red candle from Thu, Aug 24 (Image 1). It just so happens that achiving that will also mean poking through the 20SMA and 50SMA. Resolving this may take 2-3 days, but where we end up after will likely dictate trajectory into Sep opex (9/15).

If we fail to breach the 20/50SMA, we set up for a nice head and shoulders that sees us into the 4200 area over the next few weeks. It should be a gentle glideslope down though, as there is a ton of supportive gamma just below us, which will only get stronger. (Image 2)

If we succeed in breaching those levels, we could be looking at a double top soon, helped by the supportive option flows start later this week. (I say double top as I expect down correction after opex, if we do go higher into it.)

Option metrics themselves are not of much use at this moment. Vol trigger was at 4415 today and SPX closed at 4433, so we’re relatively balanced. Call wall is at 4600 and put wall is at 4300 though, providing much room to maneuver too.

All in all, will let the next days play out and reassess again on Fri on what the next two weeks could look like.

Btw… isn’t it interesting that we’re right in the middle of the JPM strikes? Wonder which one we end up kissing in a month. :smiling_imp:


Those are very non-even odds indeed! I wonder if Vixspiratoin plays a role in any of this.