Next week promises to be interesting. On Tuesday and Wednesday the data will be published on. We are also waiting for “Friday of the witches” – this Friday several derivatives expire at the same time. In addition, several Treasury Bills auctions are scheduled for this week, which will affect the dynamics of yields and equities. For a complete picture, just the expiration of the options is not enough: it will come only on September 21st.
The expiration of options will play a major role this week, perhaps even more than the release of inflation data. Judging by the current range levels, it has gone too far and should come back. Range, of course, changes every day and can go up. But for now, the most significant gamma area of the S&P 500 is around 4000, with the 3900 and 4100 levels serving as outer limits for puts and calls.
Gamma put and call options on the S&P 500
Depending on how these levels change over the course of the week, the S&P 500 could fall towards 4000 unless there is significant range buildup to higher levels. We have already seen a similar situation in July and August, when the exchange-traded fund rose sharply in the week leading up to the option’s expiry and then fell to gamma concentration levels in the expiry week.
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QQQ – daily time interval
A pullback of the S&P 500 would make sense from a technical point of view given the many strong Fibonacci levels. The current rally has corrected the 50% drop from mid-August highs to September lows. Furthermore, this rally has been an extension of 1.618% since 7 September.
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S&P 500 futures
Also, on Friday afternoon, the chart appeared to form a trailing diagonal triangle, suggesting that the S&P 500 futures could return to around 4,000.
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S&P 500 futures
If this turns out to be the start of a third wave of bearish impulses, the decline could continue well below 4000, break recent lows around 3900 and ultimately drive the S&P 500 to new lows. On the money market chart, we can distinguish a clear rhythm, as well as a “bearish” “expanding wedge rising” pattern.
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SPX – daily time slot
Nasdaq
The same patterns are forming on the QQQ chart as on the S&P 500 chart: a rising expanding wedge and a trailing diagonal triangle indicate further decline. Like the S&P 500, the QQQ only corrected 38.2% of its recent drop. But unlike the S&P 500, QQQ has already broken the lower boundary of the widened wedge, which can be seen as a signal in terms of the S&P 500’s further dynamics.
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QQQ
TIP
An expanding wedge has also formed on the ETF chart. This fund, like QQQ, has broken through the bottom edge of the wedge, which means that the “bearish” pattern has already consolidated. Since we know that QQQ and TIP ETFs follow each other over time, the same pattern that appears on all three charts is not surprising.
—TIP Exchange fund
2-year Treasury yield
advanced Friday to close at a new cycle high of 3.56%. It appears to have broken through the resistance and, as I noted earlier, is expected to hit 4% in the not too distant future if the Fed is really going to raise rates to that level.
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2-Year Treasury Yield – Daily Timeframe
Biotechnology sector
did not participate in the Friday demonstration. It has risen, but only marginally compared to the strong gains of broad market indices. Furthermore, the chart appears to be initiating a reversal pattern as it fails to break the long-term downtrend.
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XBI – daily time frame
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