Did the Market Just Top Out? What to Watch Out for This Week
US markets are closed for President’s Day on Monday and will reopen on Tuesday.
There will be plenty of market news, mostly on Wednesday, with the 20-year Treasury Auction at 1 PM ET, The Fed minutes at 2 PM ET, and Nvidia’s results after the close. Then, on Thursday, we will get initial jobless claims at 8:30 AM ET and a 30-year TIPS auction at 1 PM ET. So a lot is taking place mid-week.
This week will also be a post-options expiration week, and that means that gamma levels will be greatly reduced in the S&P 500, which could make the market more unstable and more prone to big intraday swings.
Gammalabs shows that gamma levels have been reduced to just $140 billion in the S&P 500 as of Friday, down from $683 billion on Thursday. So, the market isn’t too far from that zero gamma level, and a slip into negative gamma can expand volatility.
Additionally, the S&P 500 appears to have formed a diamond reversal top, and if that is the case, the entire rally from the October lows could be at risk. But we have to take things one step at a time, with the first level of support at 4900, 4,850, 4785, and 4,690.
If the pattern is right, it has already broken, and the index should continue to drop from Friday’s close. If the pattern is wrong, we should be able to gap up to 5,040 and keep moving higher.
It is the same for the Nasdaq 100, with the diamond top and index sitting on support at 17,685. A gap lower on Tuesday potentially sets up an initial drop to 17,141, and then to a gap of 16,740, and then 16,260. But the entire rally off the October lows is at risk if the pattern is right. Typically, diamond reversals return to their origins, and this origin is at the October lows. If I’m wrong, we should be able to move higher, take out
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