Nothing improved this week. Risk-Off holds.
The S&P 500 fell another 70 points. The distance between the S&P 500 and the gamma flip line grew to 174 points. Six weeks ago, it was six. Breadth crossed into Bearish territory for the first time this year. Two Bearish signals. Two Neutral. Zero Bullish. Same allocation.
Dealer Gamma and Market Structure
The S&P 500 closed Friday at 6,632. The gamma flip line is at 6,805. As of this morning the S&P 500 is trading at 6,714, above Friday’s close but still 91 points below the flip line.
The weekly expected move sets the boundaries for this week at 6,892 on the upside and 6,453 on the downside. The S&P 500 is currently trading in the middle of that range, well below the gamma flip line and well above the downside boundary. Until the S&P 500 closes above 6,805 and holds it, none of that changes.
Below that line, dealers hedge with price, not against it...
Below that line, dealers hedge with price, not against it. The S&P 500 drops, they sell. It bounces, they buy into it. Every move in both directions gets amplified. That is why this tape feels more violent than the point moves suggest. That is mechanics, not sentiment.
The weekly expected move is 6,892 upper and 6,453 lower. Getting the S&P 500 back above 6,806 requires a sustained multi-session bid from discretionary buyers competing against six straight weeks of systematic selling.
Realized Volatility and Vol Control
1-month realized volatility: HIGH-VOL REGIME.
The spread between the two narrowed from 2.6 points to 0.7 this week. First time in six weeks it has not widened. Vol-control funds do not start rebuilding equity exposure on one week of improvement. They need 1-month realized volatility to fall back below the 3-month reading and stay there. That has not happened. The mechanical selling continues.
Flows
CTAs have been selling for six consecutive weeks. Every failed rally below the gamma flip line and below trend triggers another round of unwinding.
The combined flow signal moved from Bearish to Neutral this week. The selling slowed. Buying has not started. Any rally that holds has to come from discretionary buyers, without systematic support. That is a structurally weaker setup.
Breadth and Participation
50% of S&P 500 stocks are above their 200-day moving average. Breadth Signal: Bearish.
Three weeks ago, this was 68%. Two weeks ago, 67%. Last week, 57%. Eighteen points in three weeks. The 3/9 report noted a 7-point buffer to the Bearish threshold. That buffer is gone.
The next level to watch is 40%. Structural bear market territory. Ten points away.
Composite Signal and Regime
Two Bearish. Two Neutral. Zero Bullish. Risk-Off. Second consecutive week.
Allocation unchanged: 75% SPLV / 25% BTAL. SPLV anchors the downside. BTAL is long quality, short beta. Built for exactly this environment.
Three things change the allocation. The S&P 500 reclaims 6,806 and holds it. Realized volatility flattens, and the 1-month/3-month spread turns negative. Breadth recovers above 60%. Zero out of three right now.
Performance
The weekly rebalance is down 0.39% year-to-date. The S&P 500 is down 2.86%. While the index has been selling off hard since late February, the weekly portfolio held its ground. That is what a defensive posture in a deteriorating market is supposed to do.
The daily rebalance is down 9.41%. That is the cost of reacting to every session in a tape this volatile. Whipsaws in both directions have punished anything that tried to keep up with intraday moves. The weekly rebalance sidesteps that by updating once a week when the signal is clear, not every day when the noise is loudest.
The process is about alignment, not outcome over any single week. At some point, this entire framework will shift to an indicator to further prove this point.
Bottom Line
The S&P 500 is at 6,632, 174 points below the gamma flip line. Dealers are amplifying every move. Realized volatility is in HIGH-VOL REGIME, though the 1-month/3-month spread narrowed for the first time in six weeks. CTA and vol-control flows ticked from Bearish to Neutral, but systematic buying has not resumed. Breadth dropped from 57% to 50%, crossing into Bearish territory.
Two Bearish. Two Neutral. Composite Neutral. Regime Risk-Off. Allocation 75% SPLV / 25% BTAL.
The S&P 500 needs to reclaim 6,806, volatility needs to flatten, and breadth needs to recover above 60%. None of those conditions are met yet.
And remember - The one fact pertaining to all conditions is that they will change.
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Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President
Disclosure
The Gamma Report is published by Ivory Hill, LLC. All opinions and views expressed in this report reflect our analysis as of the date of publication and are subject to change without notice. The information contained herein is for informational and educational purposes only and should not be considered specific investment advice or a recommendation to buy or sell any security.
The data, models, and tactical allocations discussed in this report are designed to illustrate market structure and positioning trends and may differ from portfolio decisions made by Ivory Hill, LLC or its affiliates. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results.
Ivory Hill, LLC, and its members, officers, directors, and employees expressly disclaim any and all liability for actions taken based on the information contained in this report.