Inflation will be the key focus this week, with the December 2024 producer price index (PPI) and consumer price index (CPI) reports set for Tuesday and Wednesday, respectively. Additionally, the economic calendar features retail sales data on Thursday.

It’s also earnings season again. Major U.S. banks including JPMorgan (JPM), Goldman Sachs (GS), Citi (C), and Wells Fargo (WFC) will report on Wednesday, followed by UnitedHealth (UNH) on Thursday and SLB (SLB), the world’s largest oilfield services company, on Friday.
Several key conferences will also capture attention. The ICR retail conference will showcase big names like Walmart (WMT) and Macy’s (M), while the JPMorgan Healthcare Conference will highlight the pharmaceutical industry.

Since the last FOMC meeting on December 18, 2024, equities have struggled as rates have moved higher. The increase in Treasury rates reflects concerns over national debt, fiscal/monetary policy misalignment, and inflation risks, prompting participants to demand higher premiums amid uncertainty. These conditions could persist into the next FOMC meeting on January 29, which may provide more clarity on the macroeconomic outlook and a trigger for longer term positioning. In the short term (1-2 weeks), market focus may start to shift toward earnings and Monthly Options Expiration (OPEX).
The upcoming SPX OPEX on January 17 is call-weighted, meaning there are more calls expiring than puts.

Participants are mostly short on these calls, which is typical due to the ownership of the underlying assets. However, puts are in control, with the Gamma Index at -980M, implying a 'risk-off' sentiment and indicating that dealers are short gamma, hedging by selling weakness and buying strength. This has led to elevated intraday volatility and significant price swings, with the 5-Day Average True Range (ATR) at 98 points, or 86 points when measured from the last FOMC meeting.

The VIX is trading at 21.5, well above its lower bound of 12.7/12, and the Volatility Risk Premium (VRP) is trading at a premium, indicating that implied volatility is well above realized volatility. This also applies that short volatility structures are starting to become more attractive for longer-dated participants.

As a result of elevated implied volatility (IV), there is continued potential for feedback loops if volatility—using the VIX as an intraday proxy—experiences a significant move, whether up or down. In other words, try to trade in line with the VIX and watch for peaks and troughs at key levels. The VIX often peaks/troughs before the SPX.
Positive Feedback Loop (Upside Squeeze)
A market rally -> reduces put values -> making dealers buy stock -> implied volatility declines -> leading dealers to buy more stock -> encouraging participants to close puts and buy calls -> prompting more dealer buying -> thereby reinforcing the rally in a positive feedback loop.
Negative Feedback Loop (Rapid Decline)
A market decline -> increases put values -> making dealers sell stock -> implied volatility increases -> leading dealers to sell more stock -> encouraging participants to close calls and buy puts -> prompting more dealer selling -> thereby reinforcing the decline in a negative feedback loop.
SPX options are pricing in a 1.30% (5751 / 5903) move today (Monday). For the week, a 3.2% (5641 / 6013) move is expected, with implied volatility elevated on Wednesday for CPI, pricing in a 1.50% move.

There are two structures in play, with the PPI/CPI reports potentially acting as a catalyst for a move toward either the multiday downsloping trendline (in yellow) or the broader, macro upsloping trendline (in pink).

Last week, the SPX broke through some key levels, notably 5875/5870 and 5830, the FOMC low, which was essentially where we closed on Friday. Major support on the downside is at 5800, with the election gap fill at 5782, followed by 5720/5700. On the upside, bulls need to reclaim these levels, followed by 5900, 5920, 5950, and then 6000.
Last week, the SPX broke through several key levels, notably 5875/5870 (the H&S neckline) and 5830 (the FOMC low), which is essentially where we closed on Friday. Support on the downside is at 5800, 5808 - 5782 election gap, followed by 5775/5770 (SPY Put Wall equivalent), 5722-5714 gap zone, then the 5700 SPX Put Wall. On the upside, bulls need to reclaim 5830 and 5875/5870, with further resistance at 5925 Flip and 5950.
Given that positioning is dynamic, key levels can change day to day. Members should make sure to check the Key Metrics table every day before the market opens for any changes.

Until bulls reclaim the Flip, we continue to recommend a cautious approach, expecting increased volatility, weaker levels, and lower pin predictability. For strategies, utilizing low-risk options, such as butterflies and debit verticals, can help prevent significant drawdowns during this time.
Gamma Levels for 2025-01-13
SPX Price | ES Price | Level ID | SPY Price | Level ID |
5925 | 5964 | FLIP | 590 | FLIP |
6000 | 6039 | ABS | 585 | ABS |
6165 | 6204 | CALL_WALL | 600 | CALL_WALL |
5700 | 5739 | PUT_WALL | 575 | PUT_WALL |
5900 | 5939 | G1 | 573 | G |
5800 | 5839 | G2 | 568 | G |
5850 | 5889 | G3 | 592 | G |
5950 | 5989 | G4 | 592.5 | G |
5750 | 5789 | G5 | 598 | G |
6050 | 6089 | G6 | 578 | G |
5775 | 5814 | G7 | 580 | G |
5875 | 5914 | G8 | 584 | G |
5770 | 5809 | SPY PUT WALL | 570 | G |
5720 | 5759 | G9 | 587 | G |
5830 | 5869 | G10 | 595 | G |
Tips for Trading Negative Gamma
Use the 1-hour and 15-minute chart for a clearer perspective on intraday price action and to avoid entering or exiting the trend too early.
Focus on macro levels: example: 5875/5870 (head & shoulders neckline), 5830 (FOMC low), and major gamma levels (00, 50).
Utilize upsloping and downsloping trendlines that span multiple days or even intraday, if they have been respected for a sufficient period of time. These trendlines help identify the prevailing trend and can assist in predicting potential turning points.
Watch for pivots around 12:00 PM (Euro session close/U.S Lunch) or 2:00 PM (Profit Taking), as price often shifts during these times.
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