The Pre Market Report - Monday 14 July

Buy the dip? Seems likely

Good morning all! The market is currently at a critical juncture as we approach tomorrow's CPI data release. The market is in a seven day balance period as we await tomorrows crucial CPI data. Options data points to key price levels that will likely dictate today's trading action. The overarching theme is one of pinning and pivotal balance, with spot prices across SPX, SPY, NDX, and QQQ all sitting very close to their High Volatility Levels (HVLs). These HVLs act as fulcrums for dealer hedging, making activity around them crucial for market direction.

For the S&P 500 (SPX/ES) and Nasdaq-100 (NDX/NQ), we observe significant Call Resistance levels acting as potential ceilings for any rally – notably, SPX 6300 and NDX 23000. Conversely, strong Put Support levels, like SPX 6200 and NDX 22500, are providing robust floors. For SPX, the 0DTE HVL at 6260 is a critical pivot, while for NDX, the 0DTE HVL at 22730 will be the battleground. Currently, the market is largely in a negative Gamma environment, meaning volatility could expand on moves lower as dealers sell to hedge. However, if buyers can push prices above these key HVL pivots, dealers would be forced to buy futures, potentially accelerating an upward move towards those resistance levels. The general guideline in balance is to expect responsive activity (IE, reversal), until market generated information forces initiative behavior. We’re unlikely to see the latter until CPI is printed, short of any unexpected major headlines.

Interestingly, the VIX is offering a significant tailwind for equities, sitting directly on top of major Put Support at the $17 strike. The substantial negative Gamma at this level incentivizes market makers to suppress volatility, putting a floor under prices. This strongly supports the idea of buying dips at balance VALs. Our trading plan for today centers on these HVL pivots. For ES (S&P 500 Futures), the primary pivot is 6302. Sustained trading above this could target 6317-6327 and then 6342. A rejection, however, could see a retest of 6262 and potentially 6242. Similarly, for NQ (Nasdaq-100 Futures), the key pivot is 22910. A move above could see targets at 23080 and 23180, while a failure might lead to a retracement towards 22720-22680. The most likely scenario remains a battle around these pivots, with a potential drift upwards to test the gap, but likely capped by the major Call Resistance walls ahead of tomorrow's CPI data. I tend to avoid trading around major VPOCs as they tend to invite chop as bigger players accumulate positions at these high-traffic zones, but they act as great magnets/targets.

I’ve already taken a buy during Globex at the lows on NQ, and I’ll be focused on buying dips today unless there’s any surprises. If we’re already very close to the balance VPOCs by open, I’m unlikely to participate again today.

I made a note about including RTY in the analysis. I’ll probably look to include this after CPI, after I’ve dug deeper into the daily chart. It offers (sometimes) cleaner moves and manageable tick sizes. With that said, covering two markets is about right for me. I’ve never been one to cover hundreds of stocks and pretty much live in the indices & fixed income markets.

.Trade Safe

-Z