Ths SPX closed two percent higher on Thursday and was able to clear the important gamma marker at 4000 index points, from where the momentum accelerated further.
Biggest gainer among S&P 500 sectors was the consumer discretionary complex (+4.9%), which was pulled higher by mega caps like Tesla (+7.4%) and Amazon (+4%) and which featured several components with double-digit gains (Dollar Tree +21.9%, Macy’s +19.3%, Dollar General +13.7%, Norwegian +12.1%).
Consumer stocks were boosted by friendly guidance from several companies and an upward revision to the consumer spending component in the Q1 GDP Report (to 3.1% from 2.7%).
Main drivers in our opinion were the prospects of lower rates/less hikes (see morning briefing), which ultimately translated into a sharp short/gamma squeeze.
The analytics firm Vanda Research reported that it is mainly the retail investor, who is - despite dramatic portfolio losses - holding up the market at the moment, while professional asset managers are reducing equity allocation.
So there we have it: Retail investors forcing option dealers to ramp the market higher in a highly illiquid market (according to Vanda it currently takes only 10MM to move the market by 20 bps).
Gamma discussion:
Dealer gamma increased by a whopping 229MM to -494MM. Targets on the upside are 4100 and 420 (gamma inversion), while downside targets are 4000/3950/3900.
Tomorrow top-hawk Bullard is speaking, which could drive rate expectations higher (and stocks lower) again, while investors will receive PCE inflation numbers for April and the Michigan Consumer Sentiment.
The market is far from out of the woods yet and still in a short gamma environment which means option dealers are “liquidity takers” and will hedge cyclically (if the market goes up they buy more, if the market goes down they sell more).
We advise you to stay cautious.
Biggest gainer among S&P 500 sectors was the consumer discretionary complex (+4.9%), which was pulled higher by mega caps like Tesla (+7.4%) and Amazon (+4%) and which featured several components with double-digit gains (Dollar Tree +21.9%, Macy’s +19.3%, Dollar General +13.7%, Norwegian +12.1%).
Consumer stocks were boosted by friendly guidance from several companies and an upward revision to the consumer spending component in the Q1 GDP Report (to 3.1% from 2.7%).
Main drivers in our opinion were the prospects of lower rates/less hikes (see morning briefing), which ultimately translated into a sharp short/gamma squeeze.
The analytics firm Vanda Research reported that it is mainly the retail investor, who is - despite dramatic portfolio losses - holding up the market at the moment, while professional asset managers are reducing equity allocation.
So there we have it: Retail investors forcing option dealers to ramp the market higher in a highly illiquid market (according to Vanda it currently takes only 10MM to move the market by 20 bps).
Gamma discussion:
Dealer gamma increased by a whopping 229MM to -494MM. Targets on the upside are 4100 and 420 (gamma inversion), while downside targets are 4000/3950/3900.
Tomorrow top-hawk Bullard is speaking, which could drive rate expectations higher (and stocks lower) again, while investors will receive PCE inflation numbers for April and the Michigan Consumer Sentiment.
The market is far from out of the woods yet and still in a short gamma environment which means option dealers are “liquidity takers” and will hedge cyclically (if the market goes up they buy more, if the market goes down they sell more).
We advise you to stay cautious.