Hey There Income Hunter,

The S&P 500 held the highest net-negative gamma strike at 3900 last week.

The level held twice this and, as markets moved higher, traders sold volatility, which led to a short covering rally. Put selling and call selling dominated activity towards the end of the week.

On the fundamental side, a stimulus to provide relief from the energy crisis in Europe provided a short-term positive for Western equity prices. 

Now the key question is …

Do new buyers enter the market to fuel higher prices that can shift the net negative gamma to positive, which would fuel more selling of volatility. 

As you can see, every sector of the US equity market was higher on the week. The energy was the weakest of the group …

Today, we’ll cover the key data for the week and what trade opportunities to look out for.

S&P 500 Index ETF (SPY)

There is a lot of news and data that could impact the market this week including:

• $91 billion in Treasury auctions:

• Monday: $41 billion in 3-year and $32 billion in 10-year notes are issued

• Wednesday: $18 billion in 30-year bonds are issued

• Inflation Report: CPI is reported on Tuesday at 8:30 a.m.

• VIX Options Expiration (OPEX): Wednesday 9/14 

• Monthly OPEX: Friday

Now, let’s take a look at the gamma structure of SPY heading into Friday’s OPEX …

Friday SPY has 27% of its gamma expiry. Notice the spot gamma chart below showing a higher amount of call gamma than put gamma expiry … 

Call gamma is depicted by the orange bar next to each strike and put gamma is depicted by the blue bar.

This is an important signal the week of expiration (OPEX) because, as customer calls expire, dealers who are long stock to delta hedge their short call positions must sell out the stock.

So, let’s say we get a lower CPI number on Tuesday and SPY rallies towards $410, then selling against the $410 level offers a high probability of success heading into the Fed FOMC meeting the following Wednesday (9-21).

United States Brent Oil Fund ETF (BNO)

Oil may be putting in a bottom and I believe the policymakers in the West are making another huge mistake by attempting to put a cap on oil prices.

This is another poor decision that will backfire on the Western nations because it only gives Putin an incentive to raise oil prices knowing how desperate the West is to lower them.

What the Western leaders are missing is that Putin is flush with reserves right now from all the oil he is selling to his Eastern allies. This means he can decrease production and force higher prices as retaliation – further crushing the European economies. 

Notice the technical setup for BNO below. After trading below the 200 dma (red line) it gapped back above on Friday.

 

On a move to close the gap and backtest the 200 dma consider buying a bullish strategy below $29 for a move to test the 50 dma just above $30.50. 

Bring It Home

The critical CPI report this week is expected to be 8% year-over-year on the headline number versus $8.5% y-o-y last month. That is still way too high for the Fed, which will raise rates by .75% next week (9/21).

The other important event to watch for this week will be how the market absorbs the $91 billion in Treasury supply. European rates are rising sharply and foreigners, especially China, have been selling US Treasury bonds.

The damage to growth in the US is decreasing tax receipts, which will force the Treasury to issue more bonds in the months ahead. This balance-of-payments hole is a signpost that could force the Fed pivot, and I will be watching it closely. 

Higher interest rates and the energy crisis are weighing on global growth, which will tip the scale in favor of lower stock prices, which may also fuel one more downtrend in commodities.

I am leaning on one more possible low in silver, gold, the miners, and possibly oil to pull the trigger on adding to current longs in uranium, natural gas, oil, and precious metals …

Stay tuned for more on that this week and in the meantime … 

 Live and Trade With Passion My Friend,

Griff