Good Morning:

• Futures dropped ~1% to 3885 overnight, and the S&P opened with a True Gap Lower and Gap Rules on tap – assuming one should Day trade at all on Quadruple Witching expiration.
• 3900 is the key level today and is currently overhead resistance. This is followed by 3925 (the Volatility Trigger) and 3950. Key downside levels are 3878 and 3800 (SPY 380 Put Wall).
• As we painted an official sell signal yesterday at 3995, we advise caution as the risk of moving sharply lower is elevated. 
• Recall that below 3900, the market is dominated by puts, and implied volatility could spike. This is a formula for large, “panicky” moves lower.
• The biggest driver today is expiration, the 2nd largest on record (in delta terms).
• Today is Quadruple Expiration – so weekly, monthly, quarterly, and annual options and futures expire and roll.
• As such, we don’t try to trade these days. There are many distortions, and it is far better to sit them out. The Trading Room will be closed today.
• As I mentioned over the past week, Tuesday is usually the time to get positioned for year-end. The market will start with a clean slate (from an options perspective).
• Balance Rules are on the table with the bottom end at 3900.
• On December 13, the spike high, breakout, and reversal was a great example of a breakout from balance (4100) failure that brought us back to the other end of the balance range at 3900, where we find ourselves now.
• Will we now see the same fakeout and reversal at the bottom of the balance range at 3900? Could we go back to the other end at 4100?

Stay Tuned,

A.F. Thornton