The S&P 500 closed Friday at 7,674, down 1.4% from last week’s 7,786 close. Risk-On and positive gamma held Monday through Thursday. Friday broke both. A drop through the 7,694 flip level pushed dealers negative gamma for the first time since the August 11 sell-off, and the composite regime downgraded from Risk-On to Neutral in the same session. Last week’s report called the cushion above the flip thin and said a break accelerates the move lower. It broke.
Asset Performance
Implied Correlation
CBOE one-month implied correlation is 8.34, down from 8.67 last week but still above the 8 line that defines an elevated regime. At the 13th percentile over two years it remains historically low despite the pullback. Low correlation keeps index vol pinned while leaving room for the wide single-stock dispersion the momentum universe shows below.
Vol Term Structure and Economic Calendar
Wednesday brings the week’s key test: GDP, core PCE, and the PCE price index together, all high-impact, priced at plus or minus 1.09%.
Earnings
Retail and mega-cap tech share the week. Dollar General and Best Buy report Thursday before the open, a read on discretionary spending. Nvidia reports Wednesday after the close, the single most important print of the week for index given it is the biggest weighting in the S&P 500 at 7.98%. CrowdStrike and Salesforce report the same night. Marvell, Workday, and Ulta follow Thursday after the close. No earnings scheduled for Friday.
Sector Momentum
Technology, industrials, and utilities all cooled, each down roughly 3.4% to 3.5% over five days even with positive year-to-date returns still intact. Communication services and consumer discretionary remain the laggards, both negative for the year and roughly flat to down for the week.
Single-Name Momentum Universe
Dispersion is extreme again. Moderna is the outlier of outliers, up roughly 125% over five days and still adding on the day, a print far outside the rest of the 503-name universe. Coinbase (roughly +18% over five days), Freeport-McMoRan (roughly +12%), and Robinhood (roughly +13% on the day alone) sit in the next tier, all crypto- or commodity-linked names riding bitcoin’s month and copper’s bid. On the downside, Marvell, Sempra, Edison International, and CenterPoint sit in the laggard cluster, modestly negative on both windows heading into Marvell’s print Thursday.
Market Structure: Gamma Flip
Below the flip, dealers buy strength and sell weakness, which widens range instead of suppressing it. Given the 20-point difference, this could be short-lived, which is why the tactical allocation is neutral and not bearish.
Weekly Expected Move
Volatility Regime
One-month realized vol fell to 12.85 from 13.17 last week. Three-month held steady at 13.46. Still a low-vol regime, and the gap between the two windows widened even as SPY broke the gamma flip Friday, meaning the drop hasn’t registered as a volatility event by realized standards yet. That’s the disconnect: dealers flipped negative structurally, but the tape hasn’t priced it. We could easily move to back into positive gamma this week.
Systematic Fund Flows
Vol-control stayed a net buyer, but barely: plus $0.4 billion over five days against plus $4.5 billion the prior week; the re-leveraging pace is stalling out. CTAs did the opposite. Three straight short days from Tuesday through Thursday put the five-day change in a clean downtrend after last week’s flow. Both algos remain long in absolute terms and positioned near cycle highs, but the marginal buyer went missing this week and the marginal seller showed up.
Positioning Index: Systematic Z-Score
The combined CTA and vol-control z-score climbed back above zero and toward the plus 1 bullish line over the past month, recovering from the sub negative 2 capitulation low earlier in August. That’s the mid-term read. It doesn’t yet reflect Friday: the daily flow data above already shows CTAs three days into a short streak. The 20-day rolling z-score hasn’t caught up to that turn. Watch for it to roll over this week if the selling continues.
Market Breadth
Breadth slipped to 72.5% of the S&P 500 above its 200-day moving average, down from 74.4% in last week’s report.
Dealer Gamma Dashboard and Composite Regime
Two of four signals flipped. Gamma went bearish. Flow went from bullish to neutral. Realized volatility and breadth held bullish. The weighted composite stays neutral, same as last week, but the composite regime downgraded from Risk-On to Neutral, and the allocation moved with it: out of 75% SPHB and 25% SPXL, into 50% SPHB and 50% SPLV. The leveraged sleeve is gone. Half the book is now defensive low-vol.
Tactical Allocation Performance
Both sleeves gave back performance. The weekly portfolio fell to 22.66% year-to-date from 27.13% last week. The daily portfolio fell to 13.76% from 17.90%. The S&P 500 total return sits at 12.95% year-to-date, itself down from 14.54%. The daily sleeve’s edge over the index shrank from 3.36 points to 0.81, nearly erased in a week. Leveraged beta cuts both ways. This is the other side of it. This is a rules-based process, and not every signal is going to be perfect.
And remember: the one fact pertaining to all conditions is that they will change.
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Kurt S. Altrichter, CRPS®
Wealth 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.