A bearish week is an understatement for how much and how quickly the markets turned and broke the bottom of a 2 yr bull trendline.
If you read my bear review for Jan, I identified how important this last OPEX cycle was going to be.
What I discovered last week was that the indexes crashed through a significant gamma zero line when FOMC (JAN5) indicated more rate hikes this year.
You can find these key gamma levels using a GEX tool I created at https://www.spyvsgme.com
GEX can be calculated using the options chain. In this case, SPX options are used to hedge dealers exposure to the trades they sell.
A significant pattern I missed last week was this H&S pattern with a retest of the neck line and a bounce and rejection of the 161.8% fib.
Overnight Bitcoin followed suit and tested its H&S 161.8% target.
Doesn’t matter if you are a bull or a bear, be careful out there.
BULL CASE
If you’re a bull, you’re looking for a strong reversal here at the 200% and a retest of the 161.8% at 4435. Win that and we could see a V-shaped recovery and regain positive gamma on the SPX ~4595.
BEAR CASE
The indexes are extremely oversold now so even a bear would expect a period of distribution before another move lower. If you look back in March of 2020 you will see after the first week of the correction there were several quick moves up before continuing down.
The 4350 strike on SPX seems to have the lowest Call exposure and is likely where pinning of the indexes will be through this next FOMC in a few days. Basing here for 2 days before a break lower is the most likely scenario.
Either case is very difficult to predict as unexpected events now would be a cause for a market crash.
Not financial advice. I’m a meat popsicle.
If you read my bear review for Jan, I identified how important this last OPEX cycle was going to be.
What I discovered last week was that the indexes crashed through a significant gamma zero line when FOMC (JAN5) indicated more rate hikes this year.
You can find these key gamma levels using a GEX tool I created at https://www.spyvsgme.com
GEX can be calculated using the options chain. In this case, SPX options are used to hedge dealers exposure to the trades they sell.
A significant pattern I missed last week was this H&S pattern with a retest of the neck line and a bounce and rejection of the 161.8% fib.
Overnight Bitcoin followed suit and tested its H&S 161.8% target.
Doesn’t matter if you are a bull or a bear, be careful out there.
BULL CASE
If you’re a bull, you’re looking for a strong reversal here at the 200% and a retest of the 161.8% at 4435. Win that and we could see a V-shaped recovery and regain positive gamma on the SPX ~4595.
BEAR CASE
The indexes are extremely oversold now so even a bear would expect a period of distribution before another move lower. If you look back in March of 2020 you will see after the first week of the correction there were several quick moves up before continuing down.
The 4350 strike on SPX seems to have the lowest Call exposure and is likely where pinning of the indexes will be through this next FOMC in a few days. Basing here for 2 days before a break lower is the most likely scenario.
Either case is very difficult to predict as unexpected events now would be a cause for a market crash.
Not financial advice. I’m a meat popsicle.
