Morning Notes – 6/21/2022

Good Morning:

• Options expiration has cleared the decks, expanding the range boundaries to 3600 as the Put Wall on the downside, also near the WEM low for this week set at 3575.
• The upper boundary now sits at 3900, but the price will first encounter the WEM high this week at 3795.
• Today, the options market priced the range (from Friday’s close) at 3617 to 3750. The market already tagged 3750 in the Globex sessions  (from Sunday night through the holiday and into this morning).
• Using a Gamma calculation, it might be better to set the range from the open this morning at plus or minus 37 points.
• The ranges have been less accurate recently, as the options market has been running inefficiently, punching dealers and other premium sellers in the face.
• Last week, we saw one of the largest sell programs in history, the second-largest week of shorting the market in history, and four days of 90% breadth participation in the downdrafts.
• As usual, a lot of the action occurred overnight, leaving U.S. traders with gap and crap ranges to daytrade.
• At this writing, the market will gap higher this morning, if ever so slightly. If it is a True Gap, Gap Rules will apply.
• Today’s sandbox includes the 5-day line at 3745, already overnight resistance, and where the market broke down from Thursday. There is good support at 3725 and then 3688.
• The pattern since March has been for each short-covering rally to cover less ground than the last, with the market rolling over sooner.
• The chart looks like the market is possibly curving down into an eventual waterfall decline and capitulation.
• From a macro perspective, 3688 is in the middle of two volume air pockets on the daily chart.
• The overhead air pocket has 3900 as its target high, with a few bumps on the way there. The underside air pocket has 3370 as its target low, with a few bumps along the way lower.
• At this point in the 2000-2003 bear market, which I am using as the base model, the market still had more left on the downside, and the lower target is where the bear staged its first major rally. 
• On the other hand, with the market extended this short and other signs of a sustainable low, 3900 is more than possible.
• Don’t forget that important lows usually require a retest about five sessions later.
• Also, remember that the shorts have been making money and are not likely to abandon ship easily. We are in a “3” wave down in Elliott Wave jargon, which tends to be vicious, as we saw last week.
• If the market can close above the 5-day line at 3745, that would be the first good sign of a sustainable trip north. Still, be careful. The sell programs have clobbered the previous short-covering rallies.
• Any close below last week’s low at 3639 would hit the eject button and require a parachute down to 3370.

From a Gamma perspective, daily volatility should be declining to about 1%. But the options market is still pricing in a lot of volatility considering it is a shortened, four-day trading week, so be careful today.

A.F.Thornton