Now Everyone is Eyeing $4200 by EOQ

Here's my Bloomberg segment yesterday wherein I continued with my call for $SPX $4200~ BY FRIDAY!

1ST: DOLLAR AND YIELDS MAKE THE WEATHER.

Will DXY get pushed back below $106 AND will 10Y get pushed back below 4.5%? My baseline bet has been, if not, brace for impact.

I have reiterated each day in my trading room that that, technically, given the breadth destruction and macro headwinds of rising dollar and yields, not to mention USDJPY pushing higher, markets should be crashing already!

2nd: VIX IS NOT LIKELY DONE.

I warned last Monday:
"$VIX It is time."
Now that we are  sloshing around the 200D (50W), we should have a tussle until VIX can get/stay above it. Long story short:
I'm still bearish expecting VIX to push near 20. $20.44 to be exact and then let's see.

3rd: JPM EOQ OPTIONS COLLAR.

I made a call 2 months ago we could see $4K by end of quarter. Well that's not likely given it took so long to get HERE, but I did warn early last week we could see $4200 by EOQ – that is Sept 29th this Friday.

Then just this morning, as if they watched my Bloomberg segment or read my client post from last week, UBS is out with this note:

" I’m eyeing 4200 into month end – not only are shorts NOT squeezing (emboldening sellers), but implied volatility metrics remain firm. US Equity Strategies tactical risk indicator triggered this week, signaling 5% downside in SPX. On top of that, there’s $21 bn of SPX Sep29 4210 put open interest expiring on Friday that might serve as a gravitational pull (4190 is the SPX 200d moving average) - 4200 just seems to fit."

I talk about the JPM COLLAR because it's a HEDGE of size that can move or PIN the market.

The JPM Collar trade refers to a JP Morgan Hedge Fund (named: JHEQX) which hedges a long equity portfolio using a large options collar trade. Each quarter this hedge fund rolls to a news options collar trade, and the resulting hedging flows can often impact the market. To enter the collar, the fund sells a 3-5% out of the money call, and use those proceeds to buy a 3-5% out of the money put spread. At the end of each quarter they allow the existing collar trade to expire, and enter into a new collar to cover their stock exposure for the following quarter.

4th: NEGATIVE GAMME BEGETS SELLING.

Negative gamma by definition means price action is more... VOLATILE.
We are in negative gamma so more likely CTA sell triggers pick up in earnest below 4300.
That's both a put wall and volatility trigger for me.

Here's some further support from Goldman that dealers are in deep short gamma land.

"Dealers are short $2.51bn of SPX gamma, the lowest level on record, and continue to get shorter on a sell off. "CTAs will be sellers in all scenarios over the next week, and given a flat or a down tape this cohort could sell 30-40B in SPX. From a gamma perspective, 4,300 must hold or 4,200 comes into play.

On bonds:

CTA positioning in bonds almost everywhere at the ~0 percentile. Over the 1-week horizon, CTAs could pump 4.7B into US bonds given an up tape, over one month 47B. Numbers for Germany even more extreme (9.6B and 71B respectively). Important to keep in mind given the incoming inflation data in the next days.
@TheMarketEar

5th: U.S CREDIT RATING AT RISK FROM SHUTDOWN INTO A SLOWDOWN. Moody's joins the "credit negative" watch on the standoff in the U.S. over federal spending and government shutdown.

Blaming "weakness of U.S. governance strength," is a poorly written sentence to express why our best collateral - US Treasuries - is so week.

Assuming shutdown isn’t pushed out 4-6 weeks - in time for next FOMC - can you imagine the data Fed will be basing its November meeting on? All soft stuff!

Market conceivably might love that. However, if we get a shut down AND a slow down - GDP revision is Thursday as I note in the Bloomberg interview - just because bonds ** may ** bounce, is an economic slowdown bullish equities?

6TH: MINI BOND BOUNCE POTENTIAL.

Thursday’s economic data is my must watch this week: GDP revision is due.
Even though I have been a die-hard bond bear for 3 yrs now, I contend we could have a bond bounce Thursday IF the revision shows growth has slowed.

Why would that matter? According to Fed forecasts last week, they are using GDP, at least partly, to argue that economic activity is surprisingly strong.
With recent GDI growth considerably lower than GDP, and potential of GDP getting revised lower, I think this is a good place to look for a mini bond bounce.

Even with revised-lower GPD, where slowing growth would in effect help pull yields lower, this may/may not embolden the equity bulls!
But given how FOMC pulled out TWO rate cuts last week that the market was pricing in, the Thursday GDP revision could help to put them back in.
If not, bonds and equities are at risk of flushing lower. My intermarket analysis I share with clients daily in my live trading room (with updates under #intermarket-tells) warns we have not stabilized enough to swing long.

What would change my mind is a SOLID THRUST of buying. I see no signs of that yet.

---

Did you enjoy #samanthas-market-thoughts posted above? Then you would love full access to her and her live trading room, detailed macro and intermarket analysis, not to mention full portfolio of trades across Chase, Swing and Trend timeframes!
Upgrade to CLUB or EDGE today!