Where Is The S&P 500 Headed After Trump Tariffs Provoke Dramatic Plunge?

On Wednesday after market close, President Trump announced a broad suite of import tax hikes, ranging from 10% to over 50%.

The markets did not like what they saw. Not only because the White House put tariffs on a group of islands inhabited only by penguins but also because the tax math seemed very suspicious. The tariffs were much higher than markets had expected.

The result was that the S&P 500 crashed by almost 5% on Thursday alone. Asian and EU markets were a “sea of red” with most tickers down 1-2%.

But this is just the beginning. Like it or not, this new U.S. trade policy is the biggest revolution in global trade since the end of World War 2.

Here’s what our PFP system tells us comes next to give you an edge.

The PFP system has three pillars: Positioning, Flows and Price Action. Let’s look at what each one can tell us about what’s in store.

Positioning In $SPY

If we’re analyzing the positioning heading into Thursday and it expires then, there were virtually no puts below $549. However, there was plenty of fuel/positioning below $549 if we looked at expiries between now and the Apr options expiration (op-ex) on April 17.

$550 is the TGS (top gamma strike) and the TPS (top put strike) for all expiries between now and the Apr op-ex. Thus, $550 is a major level. When we’re below this, as we are of this writing, puts are completely in control.

Remember, when puts are in control:

• We’re in a negative gamma regime
• Volatility is generally larger than usual
• Dealers have to sell as markets go lower (part of their delta hedging activity)

Thus, with the current price being around $544, markets are vulnerable to more losses.

There is major support around $540, and short-term fuel below this is a bit thin after $530, so we could be getting close to a bottom if no new puts are added below this $540-$530 zone. In the meantime, positioning supports volatility and being “risk off” (i.e., not bullish) until we minimally get a close above $550.

Flows In $SPY

Since the market opened on Thursday alone, it traded over 8.3M contracts in SPY SPY with approximately 1.2-1.5M in puts alone – expiring that same day! Literally 18+% of the flows on Thursday were set to expire that day, and are only puts. That means traders short term have been hedging.

Notional deltas are currently around -650M with long puts outweighing long calls a decent chunk. This is nowhere near our worst 30-day reading (-4.2B notional deltas), so options are not climbing hand over fist to hedge/protect/bet on the downside. Some traders are selling the elevated vol at these levels, but we think this is too early to call. Overall flows have been bearish, with 77% of the call flow expiring today and only 42% of the put flow expiring today.

What this means is that calls are mostly short-term speculative (thus, the fuel is gone at the end of the day), while 58% of the put flow is further out in time. This means option traders are betting on more downside to come or at least want to protect for a few weeks out.

Thus, flows are net bearish, along with positioning.

Price Action On $SPY

The 5-minute chart below shows the massive impulsive selling from the market after the tariff announcement while only producing a mild corrective bounce.

From a pure price action perspective, my models lean towards the next major leg being down. If $540 cracks and we close below it, we suspect another impulsive leg to the downside will manifest, which means a potential push into the $530s.

I see nothing yet in the price action that would lead me to believe a strong bounce will happen, but bears need to kill off the support at $540. We are in a negative gamma regime, so volatility cuts both ways, and we could get an impulsive bounce, but it would need to clear $550 for us to feel like a short-term bottom is in play.

In Summary

Using our PFP system, all three signals are bearish for SPY, so we’ll stick with this until the PFP signals start turning. If you’d like to learn more about how we’re trading it or how we made over +101% on our UVXY in one day trading the tariffs, you can see me trade live 3x per week in the Benzinga Option School.

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