Morning Notes - 4/20/2022 | Archimedes Methodologies

Good Morning:

Call buying yesterday nudged the short-term bullish case and led to a pivot higher. But, the primary downtrend line from the 3/29 peak; the 89 (cyan), 200 (magenta), and 21-day (green) EMAs; and the WEM high at SPX 4480 could cap the rest of the week’s price action somewhere between 4480 and the new Key Gamma Strike at SPX 4500, making it tough to go long here for anything but a brief hold and gain. The Navigator Algorithm swing trigger (white) line sits at SPX 4485 and triggers a buy if we get a close comfortably above the level.

The bolstering of the bullish case is consistent with the idea that 10-year treasury rates may be peaking for now at around 3% on bullish fear sentiment before the Fed meeting in early May. Also, the tip of the right shoulder on a potential SPX Head and Shoulders Reversal pattern likely coincides with the Nominal 40-Day Hurst cycle trough. And perhaps it is early enough in the week that the market can move above the WEM high at SPX 4480 and into the Hedge Wall and Key Gamma Strike at SPX 4500, but the technical resistance is formidable in this zone. Nevertheless, moving higher would confirm follow-through of the pivot from the right shoulder and break the market out of the five-day trading range locked between 4400 and 4462. As always, watch for the Leprechauns to set a trap. The pattern seems too obvious, and it is not a reversal pattern until it is.

Look for support at SPX 4445, then SPX 4415 today. Resistance is at 4580, then 4500. Volatility estimates are still high, ranging from plus or minus 30 points from yesterday’s close at SPX 4662 (deduct about 6 points from any SPX number to approximate the nearby futures contract) to a total plus or minus 50 points from today’s regular session open when adjusted for Gamma. Volatility got somewhat crushed at the close yesterday as there are some distortions around VIX expiration today.

Many VIX and SPX options expire today as an aberration to typical mid-week expiration. This likely results from last week’s shortened holiday trading. I would cap the expected range at 4500 regardless and expect the WEM high at 4480 to act as a magnet for the rest of the week if we are fortunate enough to maintain current levels.

Following up on yesterday’s Afternoon Notes, we saw interesting changes in the options market after the CME published the data overnight. Yes, the data is always a day behind, but we have a live feed.
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So let’s score one for the bulls. Traders are finally adding some call volume after getting through the monthly expiration last week, a bullish development.
While the Volatility Trigger (the threshold between positive and negative Gamma) stays about the same at 4450, the largest Gamma strike is now 4500 rather than 4400.
Volatility is still slated to be high at plus or minus 50 points from the Open, but that volatility could benefit a follow-through rally today.
The WEM high and other technicals between 4480 and 4500 will be a challenge to overcome.
We incorporate all of this information into our morning roadmap chart for subscribers.
Price could rise above the WEM in the next few sessions only to return to the level by Friday’s close. It is a tough call.
And don’t forget that if traders meaningfully conquer the 4480 WEM high, Dealers will have to buy futures in droves to hedge their positions, giving any rally ( say above 4500) tailwinds.
Perhaps the 4480-4500 region acts as resistance until next week, but my leanings remain bullish even if so. Again, it is a close call.
At this writing, the market appears to be opening at the top of yesterday’s range in an orthodox gap but could morph into a True Gap by the Open and Gap Rules would then be applicable.
This morning’s observations are consistent with yesterday’s comments about “peak fear” in 10-year rates, which have a momentum divergence at the top of a thin rising wedge.

Call buying yesterday nudged the short-term bullish case and led to a pivot higher. But, the primary downtrend line from the 3/29 peak; the 89 (cyan), 200 (magenta), and 21-day (green) EMAs; and the WEM high at SPX 4480 could cap the rest of the week’s price action somewhere between SPX 4480 and the new Key Gamma Strike at 4500, making it tough to go long here for anything but a brief hold and gain. The Navigator Algorithm swing trigger (white) line sits at SPX 4485 and triggers a buy if we get a close comfortably above the level.

Even for a brief SPX run, follow-through may result from a short-term peak in the 10-year treasury rate and a reprieve in the collapse of the Japanese Yen – a subject for another day.

A.F. Thornton

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Morning Notes – 4/20/2022