We share the Weekly Gamma Bands Update by Viking Analytics. The report uses options gamma to help you better manage risk and your equity allocations.
The S&P 500 (SPX) closed on the lows for the second straight week, and 130 points lower in a bearish week that included a pause in rate hikes from the Fed. The Gamma Band model fell continued with a 30% allocation. Technical signals remain bullish/favorable, while fundamental factors are bearish/neutral.
Gamma Band model will move back to a higher allocation if the market closes above the gamma flip level, currently near 4,415. This model will fall to a 0% allocation if SPX closes below the lower gamma level currently near 4,266.
The chart below shows how price (in black) relates to the gamma flip (in blue) and the lower gamma level (in red). The gamma flip level often serves as a support and resistance level.
The Gamma Band model can be viewed as a trend following model that shows the effectiveness of tracking various levels of market gamma. When the daily price closes below Gamma Flip, the model will reduce exposure to avoid price volatility and sell-off risk. There is also an allocation adjustment on the trend slope of the gamma flip line.
Next Friday’s end of quarter option expiration includes the now-famous end of quarter structural collar from JP Morgan. Not surprisingly, put gamma bottoms near 4,200 which is near the put leg of JPM’s collar, which is at 4215. We could see amplified moves where dips get sold and rallies get bought due to the large open interest in expiring puts.
Market Navigator Signals
Our Market Navigator Report encapsulates data from the broader market and the economy to provide a near-term outlook for stocks. Fundamentally, the market remains cautious due to credit concerns and the inverted yield curve. From a technical perspective, the market maintains all bullish signals.
Please visit our website for more information or to download sample reports.
This is for informational purposes only and is not trading advice. The information contained in this article is subject to our full disclaimer on our website.
Erik Lytikainen, the founder of Viking Analytics, has over twenty-five years of experience as a financial analyst, entrepreneur, business developer and commodity trader. Erik holds an MBA from the University of Maryland and a BS in Mechanical Engineering from Virginia Tech.
Rob McBride has 15+ years of experience in the systematic investment space and is a former Managing Director at a multi-billion dollar hedge fund. Rob has deep experience with market data, software and model building in financial markets. Rob has a M.S. in Computer Science from the South Dakota School of Mines and Technology.
Erik Lytikainen, the founder of Viking Analytics, has over twenty five years of experience as a financial analyst, entrepreneur business developer and commodity trader. Erik holds an MBA from the University of Maryland and a BS in Mechanical Engineering from Virginia Tech. You can learn more about his work on his website: www.viking-analytics.com.