MBCC Trading Highlights 23rd August'22
Trading & Investment Themes
S&P 500 – fell right back down after hitting the 4300 mark, but will it hold here? September Expiration is key!
As our subscribers know, we went short the S&P 500 when it touched 4300, as shown above, it has sold off right on queue heading back down to test the 100 day moving average now. This rally has been nothing other than a combination of extreme bearish positioning at the end of July as we went into the Fed July FOMC meeting combined with a quiet summer August month that made the rally self-fulfilling. August is always a tricky money as most are away and the computers are left to play the market and move it in the direction which may be illogical and irrational, outside of the true fundamental story. The blame is placed on how the Fed minutes were not as “dovish” as believed back in July when Powell presided over the FOMC meeting. In our view, the market chooses to hear what it wants to, based on the timing and positioning prevalent in the market at the time. There really has been NO change in Fed messaging, but the market bounced back in July claiming the Fed was a tad bit dovish, only to sell off today claiming that it was actually a bit hawkish. The only difference is the positioning and the level the market got to to reach those conclusions.
First, the technical set up of the market. For this to truly be a market bottom, the index needs to hold the 100 day support at 4090-4100. If it holds here, the Bulls will need to take it all the way to above 4280 and higher to suggest a low is in. For now we have failed at the support of 4200, and from here we can test down to 4145, if we lose that, then we can fall to 4100 immediately. Below 4100, the market next support is 4000.
Now, for the fundamental and derivative set up of the market.
The derivative set up of the market going into September is very important. The gamma set up is such that market makers need to sell deltas > 4300 as they are long gamma above there, but they will need to sell futures aggressively if the market breaks < 4200. As we move down, the market makers get more long and will need to sell faster to be risk neutral. Such is the power of negative gamma hedging. It is also one of the reasons why we rallied so hard above 4200 as well.
So what is the trade here? What are MBCC cross asset forward looking demand models pointing as to what the next trade here is in Equities, Oil, Copper, Bitcoin, Gold, and Silver here? Read more below…