Futures surged overnight and holding gains after the cash market open this morning, having bounced almost to the tick off the 'bear market' trigger levels for the S&P 500.
As SpotGamma warns, outside of the very large 4000 strike, the call positions remain light. We note that in particular the strikes above hold little in the way of call gamma, and so there is little to offer resistance above 4000.
It just seems like the market is “full up” on downside protection, and chasing higher IV’s/short-sale risks remain high (ie. you can get face-ripping rallies here).
This is just a very lopsided, unbalanced market. It seems like no one is looking to buy as shown below. This plots aggregate call & put volume for stocks in the S&P500. Note that the call volumes are near lows, with put volumes at highs.
Highlighting the risk of shorting, SpotGamma warns that it seems like something snapped yesterday. They highlighted the ~10AM odd short covering in meme-names which felt very much like a forced buyer. Take GME, for example which jumped from $77 to $108 in about 20mins of trading. Move of this move quickly reverted with GME closing at $90.
Interestingly this flow showed up in our HIRO indicator with a jump in coordinated positive delta trades (long calls/short puts) across many “low quality” names ie: AMC, GME, BB, CLOV (more charts here). Several traders also noted a change in skew both in the SPX, but also in some large single stock names right as the market felt very “capitulatory” around mid-day.
This leads us to wonder if the “natural selling pressure” is exhausted, as more positions are unwound.
SpotGamma believes there is no clear catalyst to close out puts until 5/20, and so rallies are considered short covering. These can lead to violent moves higher, but are also subject to swift reversals. We will continue to frame rallies as short covering until we see material call positions enter the market.
If we can recover the 4000 level the we think upside pressure builds opening a rather quick recovery into 4200 for early next week. Without recapturing 4000 then this could simply be a nasty bull trap and we continue to watch 3800 for material support.