1/x Post OpEx week thoughts:
What we know: -Price action shows structural, technical weakness, with movement below the 50 day -Through Fri, the drop has been predictable, & only shown signs of a ‘refresh’ & ‘rebalancing’ of metrics that were historically dramatically offsides
2/x -Short interest, despite still low has seen a meaningful uptick -NDX Non-commercial shorts have dramatically increased -sentiment has shifted meaningfully - implied correlation has dramatically normalized -& for the first day in weeks NDX outperformed SPX Beta Adjust on Fri
3/x -Despite continued seasonal & Ivol cycle weakness this week, calendar starts to turn more favorable for structural reasons next week. -elec Ivol has compressed meaningfully -Maybe most importantly, IVol’s continue to be dramatically compressed, providing meaningful support.
4/x -The inversion of the Sep OpEx curve allowed dealers to take on long Ivol post OpEx in SPX for very cheap levels given market action last week, & the move away from shorts in NDX names has only reduced short vol exposure elsewhere exaggerating oversupply.
5/x So what does this all mean to me:-market has every structural reason, after a bit more of potential decline (3225-50?)or correction in time (EOW) to find support for a few weeks starting 9/25-10/12 -stepping in front of IVol supply despite being inexpensive is likely bad idea
6/x -To be clear.This does not mean I expect a rally yet. Actually, quite the contrary, in the face of current technical weakness & poor calendar this week, the correct trade is to wait & watch w/ short pre elec calls. A break of 3240 on a closing basis, paired with an unpinning
7/xof SPX index fixed strike vols would point to the potential for significant continuation down to 3120 & potentially below, as low Ivols are providing essential support & short gamma would meaningfully unravel the market w/ low fixed strike vol & skew levels low now
8/8 -watch NDX rel strength. W/out NDX weakness(like Fri), it‘ll be hard for market to break SPX IVol oversupply -Lastly, watch impl corr, continued Vol compression should lead to decline here, if not it‘ll speak to continued stress in tech & a buy signal for Ivol. Good luck! 🍀
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