FAST FIVE: Futures Tumble As Market Increasingly Susceptible To Gamma "Sucker Punch"
Futures Tumble As Market Increasingly Susceptible To Gamma “Sucker Punch” Ahead of today's very disappointing ADP print, which badly missed expectations of 200K by nearly half, coming at just 117K, the whisper number was far higher, somewhere in the 300-400K range (to be expected following JPM's latest prediction that the US will add 675K jobs per month for the next year), which in turn pushed yields sharply higher ahead of the print.
But while as recently as last week such a poor economic print would have been sufficient to push risk assets higher, especially with yields lower, today that was not the case, and instead futures tumbled as soon as the flashing red ADP headline hit the tape.
Could it be that we have transitioned away from a “bad news is good news (for markets” regime to a clear cut “bad news is bad news” and why.
Or as the put it best, “It's as if the SPX return was simply a function of volatility spasms.” Making matters worse, despite yesterday's plunge in implied vol, beneath the market's hood realized volatility remains very high especially since high beta leaders like AAPL, TSLA, and AMZN all appear to be breaking down while the S&P holds flat.
Which, to Spotgamma means that “traders seem to be using puts as alpha generation mechanisms rather than hedges.” And so, with the S&P stubbornly unable to rise above 3,900 preventing dealers from turning long gamma, the bottom line is that “positive gamma refuses to materially build around current SPX price levels, and that positive gamma that does exist requires a push up into 3950.” As a result, with markets unable to hold the light resistance over 3900, SpotGamma's punchline – no pun intended – is that it is growing quite concerned that markets are increasingly susceptible to a “sucker punch” and if today's “bad news is bad news” is any indication, even a small tremor could unleash the next market puke.