Supply and demand segments

11/24 Supply and demand segments (comprehensive of major investment firms) – U.S. stocks on Wednesday

The market is currently estimated to be on thin ice. In places like Goldman Sachs and Nomura Securities, CTA funds, which had been a big topic in the market last week, reported that the S&P 500 index was pushed back to 6,521p on Friday, causing the index to fall back to 6,603p. In addition, Friday’s rebound saw the index recover to 6,603p, but this was not due to the CTA’s return to buying, but to the influx of short-covering and low-priced buying due to the over-perception of short-term falls. In other words, CTA funds still see the index as anxious, ready to sell again at any time until it settles firmly above the main trend line

Gamma flip is the key principle that amplifies this anxiety. Simply put, it’s like a car’s brake turning into Excel. Normally (positive gamma), market makers buy and sell when the stock price falls, and absorb the shock of the market. However, if the index falls below a certain risk line (currently around 6,550p), their position is reversed to negative gamma. From this point on, in terms of delta hedging, when the stock price falls, it sells together, when it rises, and it plays a role in expanding the volatility of the index

The plunge to 6,521p last Friday was the result of a temporary break in this gamma flip line, which led to a burst of mechanical selling by market makers. Fortunately, low-priced buying came in strongly from the psychological support of 6,500p and managed to rebound, but this did not mean the market was back in the safe zone, but trapped in a volatile box. The market now recognizes 6,520p as the real bottom, while at the same time being tasked with breaking resistance around 6,650p above.

In conclusion, supply and demand are currently twisted. If the index fails to break through 6,650p and falls back below 6,550p, this time the CTA’s remaining selling volume and market makers’ gamma hedging volume could combine to produce a stronger decline than last week. Therefore, rather than blindly believing in Friday’s rebound, this is a section where we should maintain a conservative perspective until we see if the index recovers stably to 6,650p.

Considering this, we should always take into account that the volatility of the index could increase even with small supply and demand, as trading volume has plunged due to Thanksgiving closures in the second half of the week. Personally, I am paying attention to it on Wednesday. Dell will announce its earnings after the market closes on Tuesday, the 25th. It is an AI server company whose investment opinion was lowered, saying that its margin ratio would fall due to soaring chip prices. The results will be based on changes in the U.S. stock market on Wednesday. On top of that, trading volume will decline on Wednesday ahead of Thursday’s closing, with the announcement of the PCE price index and household spending on the same day, which will affect the results of related indicators. For this reason, increasing volatility in the U.S. stock market on Wednesday is inevitable (rather, it is judged to be more important than Nvidia’s earnings)