Tl;dr SPX 4000 will likely be a magnet into middle of next week. After quarterly opex (3/17), market unpins, allowing it to move lower on a 50bps hike and/or hotter CPI/PPI. Flush/crash is unlikely though given 50bps is mostly priced in and VIX is low-ish. 0DTEs may upend things if they take market into deep negative gamma territory.
SPX continues to be all kinds of undecided. Despite some heavy data coming in. (Image 1 below preserves the lines from the previous post from 10 days ago to make this point.) Markets still dancing around that wedge, and around the 50SMA level.
We are deep in the March opex weather system, which means all those call and put walls mean something again. (Image 2) The SPX 4000 level will likely continue to function as a magnet, even more so than Jan or Feb because of the massive quarterly OI amounts. So barring significant marco news, we can expect markets to move back to this level for the next week.
The fun starts in the second half of next week. CPI comes out on Tue (3/14) and PPI comes out on Wed (3/15). Should give additional clarity on whether we get 25bps or 50bps the next Wed (3/22) during FOMC (Image 3). Note that FOMC is happening right after quarterly opex, when the market unpins. I.e. there will not be any gamma levels or call/put walls providing support. The market should move freely.
This sets us up for a drop if JPow does 50bps and/or CPI/PPI come in hot. Also because a bit of realignment of the equity, bond and currency markets is long overdue. And by most all metrics, the equity market is the one that is out of sync.
It is unlikely to be a flush/crash though as the probability for 50bps is already 80% and market is pricing that in. VIX is still sub-20, so hedging requirements are contained. And we are not in negative gamma territory so MMs are not going to make things worse.
0DTEs continue to be the potential dark horse though - if there is enough of a negative delta move, it could cause markets to fall quite a bit below the level where gamma switches from positive to negative, causing a downward cascade. (We are just at the vol trigger where that happens.) Then we are in a different regime, and will have to update this assessment significantly.
