The SPX opened with a gap down and moved lower due to weaker than expected earnings from JPMorgan and Morgan Stanley, as well as a hotter than expected PPI.
Two hours before noon the index was able to stage a reversal after the Fed Gouverneur Waller and then also Bullard said that they are supporting a 75 basis point hike and markets started to price out the probability of a 100 basis point hike.
Over in Italy, Premier Draghi tried to resign, but his request was denied by the country's president.
The Euro was again under pressure, while the Dollar index continued his sharp ascent to the highest level since 09.
Bank of America slashed its SPX target to a street low of 3600, and sees a floor as low as 3000-3200 points.
The bank is recognizing the same puzzling divergence we were pointing out in recent newsletter:
"Our derivatives team sees higher downside risks to equities given the historically wide spread between rates and equity volatility."
According to high-frequency data from Vanda, retail traders still live in a different bubble and bought the dip on Tuesday. Vanda: "Without a retail bid, we would expect to see much sharper intraday drawdowns."
Gamma Discussion
3700 had a ton of negative gamma attached, which was released, when Waller verbally intervened, and forced market makers to buy back substantial amounts of underlyings, resulting in a nice little 60 point squeeze.
Put volume was above trend again, with 3750/3700 and 3400 being the most active strikes.
Tomorrow about 22 percent of gamma is expiring, and while recent option expiry events were lifting the market higher (put options expiring = dealers buy back futures), we advice to be cautious, due to the upcoming earnings season, which could very well result in the next leg lower, as we transfer from the inflation to the recession narrative.
On Friday more bank earnings will be released ahead of the open with BlackRock, Citigroup, and Wells Fargo headlining the list.
Major health care component UnitedHealth will also report its earnings tomorrow morning.
Also potentially market moving:
Two hours before noon the index was able to stage a reversal after the Fed Gouverneur Waller and then also Bullard said that they are supporting a 75 basis point hike and markets started to price out the probability of a 100 basis point hike.
Over in Italy, Premier Draghi tried to resign, but his request was denied by the country's president.
The Euro was again under pressure, while the Dollar index continued his sharp ascent to the highest level since 09.
Bank of America slashed its SPX target to a street low of 3600, and sees a floor as low as 3000-3200 points.
The bank is recognizing the same puzzling divergence we were pointing out in recent newsletter:
"Our derivatives team sees higher downside risks to equities given the historically wide spread between rates and equity volatility."
According to high-frequency data from Vanda, retail traders still live in a different bubble and bought the dip on Tuesday. Vanda: "Without a retail bid, we would expect to see much sharper intraday drawdowns."
Gamma Discussion
3700 had a ton of negative gamma attached, which was released, when Waller verbally intervened, and forced market makers to buy back substantial amounts of underlyings, resulting in a nice little 60 point squeeze.
Put volume was above trend again, with 3750/3700 and 3400 being the most active strikes.
Tomorrow about 22 percent of gamma is expiring, and while recent option expiry events were lifting the market higher (put options expiring = dealers buy back futures), we advice to be cautious, due to the upcoming earnings season, which could very well result in the next leg lower, as we transfer from the inflation to the recession narrative.
On Friday more bank earnings will be released ahead of the open with BlackRock, Citigroup, and Wells Fargo headlining the list.
Major health care component UnitedHealth will also report its earnings tomorrow morning.
Also potentially market moving:
- 8:30 June Retail Sales, June Import/Export Prices, and July Empire State Manufacturing survey
- 9:15 June Industrial Production and Capacity Utilization
- 10:00 May Business Inventories and preliminary July University of Michigan Consumer Sentiment survey