"All Hell Could Break Loose": The Fate Of The Market Is In The Median 2023 Dot

With less than 24 hours to go until one of the most closely watch Fed announcements in a long time, the VIX finds itself hanging just below 20, the gamma gravity in the S&P is at 4,000 while dealers remains short Nasdaq/QQQ gamma (which however is shrinking by the day). In short, depending on what Powell says (we previewed how the market would respond to a hawkish... and dovish Fed), markets could tumble or surge.

A quick rundown of the key technical factors ahead of tomorrow's 2 pm announcement:

As our friends at SpotGamma note, the 400/4000 Call Wall in SPY/SPX has grown in size to over $5BN from yesterday - 10k 4000 strike calls were added yesterday, along with 100k SPY calls (to 400) - which increases its “pull” and yet total gamma is little changed in the S&P500 (that said, due to the FOMC tomorrow SG does not expect much movement today a forecast which has so far proven accurate).

(Click on image to enlarge)

On the other hand, Nasdaq/QQQ gamma remains negative, but that continues to shrink and SG notes that the upcoming March op-ex should flush out the remainder of that negative gamma position.

Meanwhile, the VIX continues to slide which is rather curious ahead of a major event-risk day such as the FOMC.

Putting it all together, Nomura's Charlie McElligott notes predicts "massive days ahead for markets", between heavy central bank information and options flows around quarterly expiration, particularly noting

  1. the release of the Fed dots, featuring what Charlie calls the "credibility conundrum" of the market anticipating and pricing a ’23 rate liftoff along with Nomura/GS/JPM all calling for +25bps in 2023, yet with Bloomberg “consensus” of Street economists expecting that the Fed will not likely reflect this in their median forecast in order to strengthen their own forward guidance and avoid further tantrums (something we expanded on earlier), and...
  2. US serial Op-Ex in VIX Wed (ahead of the Fed) and Quad Witch Equities on Friday, which has the potential to unlock new ranges and see a heavy reduction of risk and Delta.
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