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Just like call buying squeezes markets up — put buying pushes it down, since dealers hedge their positions. They buy futures to hedge calls - and sell futures to hedge their outstanding puts. Here’s a nice description (see thread). There is a record number of outstanding puts out there (which are subject to dynamic hedging). He thinks that by Dec 17 - at expiration - dealers may find themselves with huge excess of short futures (since expired puts no longer need hedging).
A grain of salt is advised. I’d expect that their algos may start unhedging the positions due to expire before Dec 17.
The "Gamma Trap"
Dec SPX has 3.3mm puts which is the largest of any expiration. The chunkiest of these puts are likely held by funds which will hold to 12/17 expiration. The 4000 strike has the most put interest.
If the market goes under 4500, the gamma trap could set: (1/n)
NQ rallied in a nice impulse within a channel. The decline so far is a 3-waver. If it completes a down impulse as per chart, that would mean a matching impulse down, after a bounce. Bearish. Hope for bulls is that this coming bounce becomes a path to new highs. [??]
Interesting… so, AMD on the monthly chart just about completed 3rd waves of several degrees - and is due to trace out a corresponding series of 4th and 5th waves… until it completes the red 3. That should keep it in a predominantly bullish mode for quite some time.
The big red 4 will take time. The red 2 took many years. Thanks, JK!
Historically, large specs are a decent contrary indicator.
Non-commercials' net longs in $SPX e-mini futures up huge, to highest since Dec '18. Holdings as of Tue when index closed at 4567, perhaps believing 4540s support + 50-day (4545) would hold. Dropped as low as 4495 intraday today but rallied to close at 4538. Crucial level. $SPYpic.twitter.com/pxiCrKrytw
A quick view on a 30 min chart. The top, I think, is wave 3 or C. If it goes down from here, the rally was probably corrective. If it consolidates and completes an impulse off the correction lows - well, quite possibly, the correction may be over.
DOW 100 vs. ~10 year fractal. Lots of license and not meant to be too leading -- just saying. While we typically base our narratives on fusions of multi-factor objective measures, one can't help but notice the occasional "whacky" image that helps to clear or cloud the picture! pic.twitter.com/05uFyWXiF2