SPY Tech Anal: Will July be "hot girl summer" or "summer of George"?

[The_Ni]

@Yong took the liberty of starting the July thread. Who would you like to be this month - hot girl, or George?

Last summer, things were pretty chill. This summer might get a bit more messy. We’re in the middle of what looks like the beginning of a strong rally. Some are calling it beginnings of the blow-off-the-top that will finally allow the market to correct. Others note that there is nothing inherently wrong with the economy, and therefore there is no reason for the market to be anything by ebulient.

It’s all a bit complicated, but the good news is we may still have sufficient clarity to trade, even as mommy-equities and daddy-bonds fight and figure things out.

I’ll be playing the next 2.5 weeks with a bullish mindset until some major bearish signal materializes. Reasons:

• Positive momentum, and the lack of any proximate potentially-bearish catalyst.
• SPX call wall is at 4500 - will need it to roll higher though to keep moving up.
• VIX is going lower and lower. Sure, part of it is because of 0DTE, but part of it is also because folks are taking of hedges because they don’t see as much risk anymore.
• Breadth is returning to markets - its not just the 7 FAANG++ stocks that are moving the indices.
• Picking up a fair bit of FOMO on Fintwit - folks don’t want to be left behind

I note 2.5 weeks and not 3 because markets might soften a few days before July opex on 7/21.

In the immedaiate term, would be nice to get a pullback to the 4400 level tomorrow to load up on bullish bets, after that gap-up on Fri. Mon is a half day when we can expect liquidity to be low, and Tue is the 4th. With this long holiday over, expecting traders to come back quite hungry.

[The_Ni]

Jobs data seems to have depressed markets a bit.

While we’re about a week early for these levels to really come into play, worth keeping them in mind as they are signals for what market is possibly thinking.

• Call Wall continues to be at 4500 and Put Wall has moved up 4200. This is still bullish.
• Nice suppport level at 4400:
  
  
• There isn’t much gamma support below 4450.
  
  
• Vol trigger is at 4395, under which level MMs start contributing in a negative way.

This is all to say that if market falls below 4400 and gets stuck there, that is no bueno.

[Navi]

Bounced above that today see if it stays that way. Love the analysis! How are those combo strikes determining your vol trigger?

[The_Ni]

@Navi I take them as provided by SpotGamma - they say they have a “prop algo”, probably some calc that determines where dealers go from supportive to abusive, based on delta, gamma, vanna, charm etc.

We saw VIX move up today across the board as a result of the high ADP numbers. If NFP comes cooler compared to ADP, this vol could dissipate and add to the tailwind. If not though… we’re at vol trigger already, so it could get spicy.

[Yong]

TLDR: I think we’re gonna have some more red days, but we’ll see if that was just a random EOD selling.

So on the hourly, we had a gap down, a solid rally up and then a melt down into close. This doesn’t give me much confidence that we’re gonna move up from here as all supports were melted and we couldn’t even finish the gap fill. The MACD is turning back down from the 0 level and the RSI is in the below 50 level.

On the daily, we had a higher volume red day with a big upwick. Shows bear strength. I think we’re going to pullback to at least the purple trendline to either bounce off of hard or to to break below and melt down. But this is just speculation. It looks like a double top right now with a bearish divergence on the MACD and RSI on the daily, which other indexes looking the same. Maybe this is the top and we’re gonna pullback for a solid bit now.

The S&P equal weight is showing some bullish signs though, as its red day wasn’t actually red and was showing strength. Maybe the selloff was something to do with people exiting after a short low volume week.

Junk bonds also didn’t have a huge red day, but given how far it dropped compared to the index, I think there’s still a bias to the bear side.

Looking at the percentage of stocks above the 20 day moving average, we are also setting up a bearish divergence here. It looks bearish, but looking at the 50 day moving average chart, we made a higher high, so there’s some conflicting data.

Overall, I think that we’re gonna have some more red days leading into the CPI data. The ideal scenario would be us going to the purple trendline EOD Tuesday and then us bouncing if CPI comes in tame again or us shit facing if CPI comes in hot. Good luck in these retarded markets.

[The_Ni]

Indeed, CPI Wednesday is likely to put a damper on things. Overall, this week seems to be a mixed bag.

Reasons to be bearish:

1. SPX sure is starting to look like a bona fide double top (Image 1)
2. Bond yields have moved up across the board, rising ~25bps, even preceding the job market data (Image 2)

Reasons to be bullish:

1. Call Wall still at 4500, and Put Wall below us is at 4200
2. Opex is next week, so flows will be supportive this week
3. Look at that 4400 gamma level - should start acting like a magnet soon (Image 3)

Reasons to not pick a horse:

1. We are right on vol trigger of 4410. Higher, and market will stabilize. Lower, and we could tumble.
2. We are sitting right on that 20SMA. Same over/under as 1.
3. Bonds are not pricing in that second rate hike that JPow keeps threatening us with a good time with, and is pricing in cuts in Q2 2024. (Image 4) CPI can significantly change this distribution, if it comes hot or cold enough.

Will keep things light, and not pick a side for additional plays until after Wed CPI print.

[Brutus]

Once I saw CPI lower than expected, I thought we would see 2% or more gains today for SPY. The somewhat muted response makes me think the market may be about to pivot and be less worried about hot inflation and more worried about a slowing economy.

[BONER]

nasdaq rebalancing happening on the 24th. the 14th this friday we find out which stocks and how much will be sold. tech mega caps obviously going to get hit the most. in my opinion thats why spy isnt running harder. most tech megas are selling off today in fears of a big selloff coming

[The_Ni]

Tldr: Option structure very supportive going into opex. To clear 4500, bank earnings would have to be decent, and Call Wall has to move to 4600.

Tomorrow has the potential to be a happening day. A bunch of big bank earnings are on deck - JPM, WFC, C, as well as Blackrock and State Street. And as @BONER mentioned above, we also get to know about the Nasdaq rebalance, which might cause some front-running action.

Nevertheless, we’re only a week out from opex, when all kinds of flows start doing things. Here’s where we are options market:

• We’re actually over the Call Wall of 4500, closing at 4510. We not seen this in a long, loooong while. Markets have decided to leave option buyer/seller exhuberance behind!
• Vol trigger is way back down at 4415 - 95 points away, so MMs will be supportive and vol dampening
• Supportive gamma levels at 4500, 4450 and 4400, with a fair bit of lard in between (Image 1 from SG)
• As SPX moves up so quickly, put hedges evaporate. Which they would have because of vega (i.e. vol dying) and charm (i.e. dte evaporating) effects, now this de-hedging is turbo charged into opex.

If bank earnings are good, we can therefore expect positive market movement to find support from the options structure.

A word of caution though - we are overstretched, far away from the 20SMA. Also, those gaps… So it is possible that we might keep coming back to the 4500 level into next week. Hence my reading that “markets should not go down,” vs “markets should go up”.

The one thing that will make things look bullish is if the Call Wall moves higher to 4600. Will update if that happens.

Do note, we do have a massive amount of options expiring on opex (7/21), and it’s call-heavy. Clearly degenerates are in total YOLO/FOMO mode, as the usually-quiet July expiry almost matches the typically-much-heavier quarterly opexes of Sep and Dec. When hedges for all these calls come off, I expect markets to go down, just like it did last month. More specifics on this on Fri (7/21), depending on where things are.

Here’s to Jamie Dimon not f*cking it up by deciding to make a three way out of Musk<>Zuck, and betting half of JPM on it.

[Yong]

TLDR: Hot girl summer incoming

So on the hourly, we have hella gaps on the bottom. Given that the RSI is at the extremes with a bearish divergence and the MACD is rolling over, I expect us to pullback to the 4450 level or 444 level on SPY. That was the sideways movement/ breakout anyways. I expect us to bounce from there because I don’t expect this super bullish rally to just end randomly. I expect lots of bounces and then have weaker and weaker volume/ moves up to finally have a bigger correction.

The reason why I expect a pullback from here is also because we had a big upwick Friday on basically every index and the big stocks like Apple. Seems like we failed to break over the 450 level or 4550 level on SPX on the dailies. Because we couldn’t hold it, I expect this rally to fizzle out here, pullback to the breakout level and then go back up. We also have a bearish divergence on the RSI and MACD on the daily so there’s a good chance we pullback.

Why I think that we’re not done with this rally is because looking at the weekly chart, every red weekly has a low volume and a small candle, but the green weeklies have a large green body with larger volume. Bears are no where close to being in control and this is just pure bull right now. I expect this rally to continue on until the ATH honestly, as long as no bad news comes along like weak guidance this earnings season.

VIX is also historically low, but it’s not making lower lows while the indexes are heading higher. Something to keep an eye on.

Some things to keep on eye on are the yields. The 10 year - 2 year might be starting to turn up and if this goes back above 0, it won’t be a good look for stocks cause it’s showing that something is breaking in the economy.

The 2 year yields are also looking like they’re going to roll over, which will allow markets to keep soaring higher. If the 2 year yields keep falling, expect markets to keep heading higher.

Junk bonds took a heavy hit. It’ll be interesting to see if they keep heading lower, but they are making a higher high, so right now, no major warning signs.

The equal weight S&P are also showing some strong breath after many weeks of weak breath. Makes the bull case stronger right now.

Pains me to say this, but it looks like bears are fucked right now and markets are on pace to break the final resistance level to test the ATH. Inflation report looked good and there might be a chance that fed doesn’t have to raise rates anymore and we actually might get a soft landing. But, the fed did say the impacts of the extremely fast rate hikes aren’t fully felt yet, so we might just get some black swan event and break the markets. Until then, we’ll just keep heading higher with higher lows. I still want to see a correction (maybe during the weaker September events) and then head up to test ATH. Good luck all and I hope all bears are doing ok because these irrational markets are pissing me off.

[The_Ni]

Quick note to say that my readhing is not much different than last week. Call Wall still 4500, so bulls will have to put their shoulder into it if they want to see markets move higher. That it hasn’t moved higher even though SPX itself has been on the other side of the Call Wall is telling of exhaustion. Major change is vol trigger is 4470 now, so closer to where we are.

Expecting SPX to do the magnet thing around 4500, barring major earnings surprises. We could start seeing weakness as soon as this Wed based on the usual opex dynamics.

[The_Ni]

Nope, not short big tech or anything substantial - still too much strength. The only bearish position are VIX call spreads, in case something goes bump

[The_Ni]

@The_Ni

Expecting SPX to do the magnet thing around 4500, barring major earnings surprises. We could start seeing weakness as soon as this Wed based on the usual opex dynamics.

Quite note to say that market continues to show exhaustion noted above - did end up topping on Wed. We’re still over 4500 though, and a brickton of options are expiring today (image 1, from SG). Record July opex ever, to boot (image 2).

Given this, expecting weakness into next week, with markets falling to or below 4500. Will comment more on how low we might go depending on what things look like before Mon open.

[The_Ni]

Well, looks like July made for a “summer of George”. SPX up ~5% almost monotonically.

For this week:

• Call wall is 4600 - hasn’t moved up, so we should expect resistence here.
• Put wall is 4500 - it’s surprising that it’s crept up so high - there’s usually a few hundred points between the two. Not shocking given that vol is dead. This will work as support. It’s just that support is … very close.
• Vol trigger is … 4570! That is very close to where we are, where the options structure goes from positive to negative gamma, and therefore where MMs start adding to movement vs dampening them. We’re “fine” as long as are above it. Can kinda see the flip below.

Overall, expecting this to be a rather boring week; usual caveat around macro shocks apply.