Today Will Be A "Notable Test" For BTFD'ers: Here Are The Levels To Watch The last seven times that the S&P 500 has traded down to its 50-day moving-average, it has rebounded rapidly and aggressively. This time - for now - is different, as Friday saw the S&P cash close back below the 50DMA and futures indicate a serious move below it at the open... And things could escalate, as. following the extinction of a serious chunk of options on Friday, we start today with a sharply negative gamma position. This negative gamma position doesn’t flip positive unless markets recover the 4425 area. For today we look to 4415 as resistance, with support at 4360 and 4310. SpotGamma's EquityHub model lays out where there are major inflection points in gamma position, which we believe can be key support and resistance lines. We believe that when the gamma position changes it may invoke a “state change” in hedging, which we’d watch for at 4365 and 4315. Finally, SpotGamma notes that the key for today will be in watching implied volatility levels (ie VIX, currently 25). A higher VIX likely means lower markets. If the VIX trend breaks lower that implies a rally. All strikes below 4400SPX/440SPY are dominated by put gamma, which are very sensitive to implied volatility. If the VIX breaks higher it indicates that puts are in demand which could lead to dealers needing to short more futures. VIX moving lower may be a signal that traders are selling puts, in which case dealers may be able to buy back their short hedges. It's not just equity markets, Emerging Market currencies are at critical levels... We give the last word to Mohamed A. El-Erian, who tweeted a warning this morning: With a down 1% Futures backdrop for the open of US #markets coming on top of three straight weeks of losses, today's trading session will be a notable test for the "buy-the-dip"/"there is no alternative"/FOMO narrative that has impressively powered #stocks through prior headwinds." This is exactly what Nomura's Charlie McElligott warned about last week: “Who woulda thunk it?!” 1) the post options expiration “gamma unclench” and “vol expansion window” allows for movement in US Equities (SPX and QQQ $GAMMA were both +90%ile just two weeks back, now Dealer Gamma in negative territory vs spot for both) via 2) a US Equities Vol market which has been pricing outright “crash” metrics for months (SPX Skew, Put Skew, iVol vs rVol, Term Structure all upper 95-99%iles), in conjunction with 3) significant de-risking flow potential from “negative convexity” vol-sensitives (what was +99%ile SPX- and QQQ- options $DELTA just ~two weeks ago, 90%ile historical CTA Trend net exposure in DM Equities and 87%ile Vol Control fund US Equities exposure) into 4) this week’s FOMC event-risk (higher Fed dot plot will signal faster tightening trajectory for ’23 & ‘24) during 5) a poor weekly seasonal slice for global Equities ahead (Sep17-Sep24 median chg ~-0.4% SPX, -0.9% HSCEI, DAX & Eurostoxx, -1.4% for Russell, with clear “Defensives / Duration over Cyclicals” historical sector performance tilts)….and with 6) a macro scare catalyst to-boot (China real estate “contagion” off Evergrande—mainland closed for holiday, but HSI Real Estate and Financials smashed overnight, while USDCNH moving towards 6.50 with client “Evergrande default” hedges in topside there) now see ES1 approx -4.0% from all-time highs made 9/3/21 Simply out, McElligott warns "option positioning is gonna hurt" - Current Gamma / Delta “flip” levels show NEGATIVE territory vs spot in all, as sources of potential “accelerant flows” HERE: With the Fed event risk holding what otherwise would be "'reflexive' sellers of Volatility on squeezes" OUT of the market, any ability to arrest this Vol spike and reverse the selloff into a “bounce” in spot won't be clear until at least Wednesday. Meanwhile, USA Sovereign risk is spiking... Do something Mrs. Yellen! Tyler Durden Mon, 09/20/2021 - 08:52