Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up +35 bps into the first full week of the new year. ISM PMI is at 10AM ET.

Oil stocks like CVX are bid after the US/Venezuela military operation.

Resistance is at 6,900, then 6,920. Support is at 6,850 & 6,800. Gamma is fairly flat across the board, with 0DTE providing positive gamma against non-0DTE negative gamma. We continue to lean neutral to short if the SPX is below the Risk Pivot at 6,900. If 6,900 is reclaimed through this weeks macro data, then we start to look at 7,000 into Jan OPEX 1/16. Conversely, a slide lower likely keeps vol bid in through that date, and possibly even end-of-month with FOMC.

While futures are higher, we see SPX IV higher, too. This is part of the IV “reflation” that was predicted coming out of the very quiet holiday period, and into this data-laden week. ISM PMI today, ISM Svc + JOLTS on Wed, Claims Thu, NFP Fri.

With SPX 1-month realized vol (RV) at 8.8%, one can make the case that these 12-13% ATM IVs for SPX are pretty fairly valued. Yes, these data points carry some event vol, but we think that RV is likely to shift a bit higher, too, after the lack of holiday movement (SPX essentially pinned 6900 for 10 days). If SPX regains 6,900, then we’d flip back to a long stance, and look for these IVs to contract just slightly. This implies that any upside may not be explosive, but more of a grind.

To the downside, any bad news would shift IVs higher, and non-0DTE negative gamma increases down into 6,500. We’re not saying we project a move to 6,500 – it would take something pretty material to spark a 5% shock to the SPX. We are saying that there isn’t clear material support for the SPX at this time. If downside momentum does start, and IVs slide higher, then a move into the 6,700s seems quite viable.

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