Macro Theme:

 

Short Term SPX Resistance: 5,350

Short Term SPX Support: 5,280

SPX Risk Pivot Level: 5,280

Major SPX Range High/Resistance: 5,400

Major SPX Range Low/Support: 5,000

• For the week of 5/20*:
• 5,300 is a large base of support, with large upside targets at 5,350, 5,365 (SPY 535) and 5,400*
• Monday & Tuesday are likely to have smaller relative movement, with trading ranges increasing on Wednesday & Thursday*
• Wednesday is VIX Exp, FOMC Mins & NVDA ER
• We like 1-month, ~25 delta SMH calls at IV of ~25% as a way to play current bullish market dynamics and a positive market reaction to NVDA earnings on 5/22. SMH IV’s are near statistical lows despite upcoming NVDA earnings.*

• 5,280 is our risk-off. A break <5,280 pushes the S&P into a more fluid, risk-off zone, with 5,200 becoming the downside target.*

*updated 5/20

 

Founder’s Note:

ES futures are flat at 5,333. NQ futures are -8bps to 18,747.

Key SG levels for the SPX are:

• Support: 5,300, 5,265
• Resistance: 5,320, 5,329, 5,350
• 1 Day Implied Range: 0.60%

For QQQ:

• Support: 454, 450, 440
• Resistance: 455, 460

IWM:

• Support: 205, 200
• Resistance: 210

Today, primarily >2PM ET, we may finally get some conditions for movement/volatility, after being pinned to 5,300 for the last week. This morning at the open is VIX expiration, so AM ES futures traders should be on watch for some jumpy movement around that time. This is followed by 2PM FOMC mins, and then NVDA earnings after the bell.

5,300 SPX to 5,320 SPX (530 SPY) is still the default/expected range, and, barring some major development from FOMC mins, we’d expect that range to hold into the close. We of course look for NVDA earnings to push the S&P away from 5,300 tonight/tomorrow, with the first major resistance range above at 5,350 – 5,365 (SPY 535), then 5,400. You can see the size of the

call gamma

at 535 SPY, below. SMH calls, as outlined Friday, are our preferred way to play a bullish equity market breakout into month end.

To the downside, a break of 5,280 is our “risk-off” signal, and open a move to 5,200. Accordingly we’d be looking to be long S&P puts and/or VIX calls <5,280.

Before we get to tonights events, for todays session we are pricing in another tight 57 bps SPX range (SG Implied Move). Further, the SPX 0DTE straddle for today is again only $17 (ref 5,320, IV 11%). We yesterday lamented about how tight this was, and true to form the SPX moved 22 handles yesterday – “blowing out” the $17 straddle. Therefore today, as we said yesterday, while you maybe don’t want to buy SPX options at today’s IV, we really don’t think you want to be short them.

These low IV’s for today are even a bit more curious given FOMC mins are this afternoon, which, while not a massive print, could trigger a bit of movement (and “a bit” is all thats needed to beat a ~30bps straddle). The other thing to take away from this is that SPX IV’s are much higher for tomorrow’s expiration (highlighted below), which is likely reflecting NVDA’s earnings, tonight.

Onto NVDA, which has a 7% implied move according to our Earnings Dashboard (see “Market Overview” homepage, bottom right).

What strikes us here is the lack of both vol & call skew. Traders are just not as bulled up as they were into previous events, as shown below. While we have no idea if that is warranted, we do think its interesting that the stock is just a shade off of all time highs with enthusiasm relatively lower. Maybe traders thing its fairly valued near $1000.

Further, we note that the last time the SPX had an intraday move of >2% was after Feb’s NVDA earnings (2/21). While we would almost never chose to be long stock options into earnings (because of the almost guaranteed event vol drop, this is why we chose to go with SMH), we can’t help but feel NVDA vol is underpriced. However, this not only true for NVDA, but SPX (and SMH), too.

While we prefer to play the reaction to earnings moves (vs ER itself), here are the key levels: $900 is the big downside strike, but its <$850 (-10%) where we’d be seeing it oversold. To the upside $1000 (+5% from here) is the massive level, and if NVDA claims that strike, there is fuel up to 1050 (+10%). >1100 is overbought.

Zooming out, we continue to think solid earnings from NVDA is a catalyst for the SPX to attack 5,400 in the coming days. Accordingly, we’d expect new lows in the VIX/SPX IV complex into month end, particularly given the Memorial Day weekend ahead.