Market Overview
The SPY is sitting right on the 21 EMA today at 769.2, with the 8 EMA at 768.64 - these two levels have basically converged into one decision zone. We’ve had 3 consecutive closes above the 21, so the short-term trend is still technically intact, but today’s price action is sloppy and indecisive right at that key level. The 50 day at 766.87 is the next meaningful support if we lose the 21 cleanly. VIX at 16.3 is calm, which isn’t screaming panic, but this convergence of the 8 and 21 needs to resolve one way or the other - watch the close carefully.
The dominant theme this morning is large institutional SPX bullish risk reversals, with multiple structures spanning Nov26 through Sep27 totaling well over $700M in notional - this is serious size betting on upside through year-end and into next year. There is some offsetting bearish SPX flow in the mix, but the bull side dwarfs it by a wide margin. A notable NFLX bearish risk reversal also printed near $18M, and someone is buying SPY 768 puts for November, which lines up right with where price is trading now - worth watching as a potential hedge against the broader bullish SPX positioning.
Top Setups — 1 Signal
MRK — BULL · MEGA
Calls Bought · Strike: 185 · Exp: Mar27 · 9887 contracts · $2.2M
MRK is trading at 148.60 following a strong third-quarter earnings report, and someone just stepped in with nearly 10,000 March 27 calls at the 185 strike for $2.2M - that is a patient, high-conviction bet that the stock has room to run well past current levels. The 8 EMA at 144.70 and 21 EMA at 144.96 are both below price and the stock is holding its ground above the 50 SMA at 146.60, which is the key level to watch. XLV is outperforming SPY by over 8%, so the sector tailwind is real - just be aware IV rank is at 73%, meaning options are not cheap.
