QQQ Just 'Gamma Flipped' as Market Makers Were Forced to Sell. Here’s What Our Top Chart Expert is Tracking Next.

The stock market gapped lower to start the week, pressured by the latest rise in long-term bond rates and the Wall Street Journal’s reporting that artificial intelligence (AI) hyperscalers are on the hook for another $3 trillion in debt and purchase obligations over the next few years.

The Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 Index ($IUXX), “gamma flipped” at 725, forcing market makers to follow the market. In other words, they’re forced to sell as prices fall in order to hedge their open positions (e.g., puts they have sold).

Currently, there is a cluster of puts at the 717/718 strike level. If prices were to fall below there, this would force the market makers to sell the QQQ, which in turn could spark a new wave of put buying and short positions. 

From a purely technical perspective, gaps represent the largest imbalance between buyers and sellers and are easily used as both confirmatory and predictive signals.

Looking through the Fibonacci lens, using the recent July 29 low and yesterday's high targets a 38.2% retracement inside the previous gap up around 706.50.

To learn more about options gamma and how it forces the hand of market makers, watch this clip from “Market on Close”:

– John Rowland, CMT, is Barchart’s Senior Market Strategist and host of Market on Close.