Macro Theme:

 

 

Founder’s Note:

Futures are +50bps higher.

Resistance: 6,700, 6,740

Support: 6,640, 6,600

<6,600 = risk off

TLDR: We remain on the bulls side while SPX >6,600.

The looming issue is the US Govt down, with Polymarket at 72c in favor of a shut down.

From JPM it seems like recent shut downs are tied to higher stocks.

With this AM market rally that the SPX is well above the JPM 6,500 floor, suggesting its impact is now fairly limited given it expires tomorrow, particularly if the SPX remains >6,600. We will still flip back to “risk off” <6,600, and we are still of the view that the 9/30 OPEX removes a floor <6,600, but we think downside will have to be more of a catalyst-driven trigger vs positioning.

On the point of gamma expiring, with the SPX 2-3% above the JPM strike the gamma related to tomorrow’s expiration is pretty small – currently 1/3 that of the minor October 10/17 monthly OPEX. The roll tomorrow would add some gamma 3-5% higher which would be a potential upside year end target.

Away from the SPX, we still see single stock call values as relatively rich, which makes them less interesting as a way to play upside. It also speaks to an overbought stance in this market, but as we discussed on Friday bulls seem to like the idea of more rate cuts (odds slid modestly higher on Friday). If you do want to buy calls then call spreads help to offset this rich IV. As for puts – well no one wants those – so outrights seem to make sense.

On the vol topic, PCE data Friday seemed to deflate vols, too, as you can see here with current SPX IV vs Thursday (gray). This weeks is ISM, Jobless, NFP, etc and if all that data is “rate cut supportive” then it seems like vols will contract further, which is good for bulls. Remember, we still have this odd vol steep VIX term structure curve which, if it flattens, could help to lift stocks. The max bull move we see at this time would be a shot up to 6,740.