Morning Notes – 7/25/2022

Good Morning:

• Review the Sunday night video above for details of our weekly plan.

• We should continue to categorize rallies as short covering and subject to failure.

• 4,000.00 is significant overhead resistance.

• 3,900.00 is the pivot above which volatility should decrease.

• 3,800.00 is major support below, and there may be an accelerated sell-off if we breach that level

• We should experience larger ranges following the July 15 (equity) and July 20 (VIX) options expirations.

• Implied volatility will likely rise as we approach the July 27, 2022, FOMC event.

• Call positions are finally starting to build overhead (Call Walls > Absolute Gamma Strikes).

• The MOVE Index, aka “Bond VIX” is breaking lower, but I have an eye on a falling wedge pattern in the VIX itself which could trigger higher volatility and lower prices for the S&P 500 Index.

• Futures have recovered Friday’s losses, back to 3982.

• Today, resistance remains heavy in the 4000-4010 range (SPX/SPY Call Wall). Support shows at 3973, then 3950.

• Two forces could keep markets contained just under 4000 into FOMC:

• The 400 SPY & 4000 SPX large gamma strikes create resistance/pin areas into which the market may bounce and then mean revert, particularly if breached to the upside.

• The equity tailwind from volatility sellers has largely dissipated since last week’s expiration.

• Generally, we view declining volatility as fuel for market rallies. Watch the falling VIX wedge.

• While 4000 is important for today’s trading, it remains the critical put/call (or bull/bear) pivot line through FOMC.

• An extended rally is possible after the Wednesday Fed announcement. See the Sunday video and reference the parameters above.

• Put positions (negative gamma bars) are very light at strikes >4000.

• Based on the facts above, we mark 4000 as the transition from a put-driven market to a call-driven market.

Good luck today!

A.F. Thornton