Vanna & Friends
hi friends,
volatility has shown face again after reaching 20 psychological level.
the magnitude of all the events that went on during today’s session superseded my expectations from the contextual clues on Wednesday.
let me explain.
Wednesday we saw a shift on the tape from volatility to non-volatility which is the effect of shifting from negative to positive gamma territory.
From Monday to Wednesday, there has been a subtle change of less fear & more passive buyers reloading as time progressed, which led us to the break-out move towards 4580.
Because of this shift on the tape, it led me to be bullish so long as 4540 holds as I can tell you being short in positive gamma is not fun.
Come to think about it, if we were to combine today’s clues with the gradual shift between Monday and Wednesday, the underlying factor of that characteristic was likely due to this week known for dominant vanna.
Also Vanna is more aggressive the first and last 30minutes of the trading day.
These clues becomes more important later.
I linked below what is Vanna below seen by Kris Sidial’s tweets.
Okay let’s dive into what happened today.
CPI numbers came out +0.6% (+0.5%E); +7.5% YoY (vs +7.3%E).
Clearly the bond market didn’t like it as this was the reaction particiapnts were focused on for direction & as a result, we saw a +50pt sell on ES_F down towards 4512 where it eventually found a bid.
Unfortunately, I was not up at the time to watch/trade the price action because my dumbass decided to stay up til 2hours before CPI trading the overnight.
The gates opened and the market went straight bid from 4516 to 4580+.
I did not see the open tape but I would assume because vanna is most aggressive first and last 30 minutes of the trading day that vanna had a part in the open rally along with a 100% net short inventory going into RTH which resulted in the 4516-4580 pop
4540 & OVN value area were reclaimed and over time this created a P-profile which is representative of short-cover rally.
This is where it gets interesting.
I noticed around 8-9am pst the tape had a subtle drop in confidence, however we were still bid > 4540 and TSLA looked like it wanted to ramp out of its consolidative range to lift the markets higher so I figured there was a probability prices could move past the 4585 zone to 4600 in addition to CPI uncertainty removed.
We went bid over 4580 which was a value area high but got rejected, pretty harsh down to 4550 before resuming a move back to 4565.
However, the move to 4550 and 4565 was very weak and fragile as there was a lack of urgency from buyers to prop it up and took a good amount of time to even reach 4565.
How this entire thing moved around 4550-4565 was giving me red flags but I remained optimistic there was a decent probability of making an attempt at 4600.
2 things
1) a +30pt rejection off 4580 is quite harsh especially if we are trending up, which ties in with how the p-profile developed later on as it was a short cover & aggressive vanna rally.
2) this pattern is an example of a market manipulation pattern where algos will bid prices higher to grab short stop liquidity as well as attract other participants to join in before revealing their true intended move which was lower.
this is also seen vice versa for when the chart is flipped upside.
yellow boxes represent areas of liquidity
not the easiest to discern real time but over time and experience looking for these patterns will you notice subtle common nuances that pop up
Okay so now at the time I have these clues
1) temporary ‘fake’ rally with harsh rejection at 4580 and lethargic price action at 4550-80
2) tape had a subtle change in confidence, lack of it which reflected on the price action mentioned in the first comment
3) potential market manipulation pattern in the works
Some time goes by until 10:30AM PST, rate hikes hit the tape.
Prices fell almost 50 handles before resuming lower for another 20 or so handles.
You can very well argue the tape alluded to some volatility abased on the developing clues. Tape was not the same as yesterdays.
This is when the sell programs began to pound the tape hard and I mean hard but also mildly orderly, market ordering down 3-4 pts for the majority of the session.
Buyers, gone, or were there buyers at all in the first place?
Where’s vanna?
Remember vanna is most aggressive first and last 30minutes of the trading session, so while vanna may be present, this effect can also be negated by other dominant flows.
For example, Wednesdays session was a slow grind up with dips being shallow and bot up, trading how it would in a positive gamma environment & the prior 2 sessions aided with this development.
But because of the dominant sell flows from CPI & rate hikes, this flip flopped on Thursday’s session as vanna was mute relative to the dominant sell order flow
Likewise, vanna’s presence didn’t show up too much until the eod, which is seen as noticeable passive buyers continuously reloading the bid on the DOM.
All that means is that when a level gets taken out by a seller, they put their limit orders back up to hold that price.
While we’re at it, let’s go back to this comment I made in the beginning.
”From Monday to Wednesday, there has been a subtle change of less fear & more passive buyers reloading as time progressed, which led us to the break-out move towards 4580.
Because of this shift on the tape, it led me to be bullish so long as 4540 holds as I can tell you being short in positive gamma is not fun.”
As the days and time progressed starting from Friday up to Tuesday, there was a gradual lack of fear on the tape and there was an uptick of passive buyers.
Structure & contextual clues on the tape alluded us higher which brought us to wednesday, 4580.
Because of my recent relative understanding of vanna and her operations, I’m pretty sure those passive buyers that were just ‘showing up now’ and led the temporary regime shift from bearish to bullish was vanna driven.
Below I have boxed in RTH open for Monday-Thursday, where you can see vanna’s first 30 minute operations.
This is the basic gist I have for today.
I hope this helped you interpret today’s action better.
If you have any questions please feel free to comment below.
Subscribe for more
Cheers