Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are down 50 bps, which is well off of overnight lows of -130bps. ISM Mfg. is at 10 AM ET.

Much like on Thursday & Thursday night the dip buyers are stepping up despite the volatility quakes. This leaves SPX this AM indicating at 6,905. Resistance is at 6,920 then 6,940 – 6,950. First support is 6,900, and we look for heavy weakness <6,900.

The TLDR here is that we need to regulate. There are too many things with high vols, and we think this breeds instability in equities writ-large. We’re seeing some signs that this extreme IV is being cleansed/reset, but we’ll wait for the smoke to clear before re-exposing equity capital.

We made the argument that 0DTE put selling was a huge reason for Thursday’s cash session recovery, and we see today that SPX GEX shows as strongly positive. However, if you remove todays expiration, we see that SPX GEX is flat to negative. This dynamic is abnormal, but it is inherently unstable because it’s here, for now, and there is no guarantee it’s back tomorrow. This means we should respect the potential for more mean reversion on the intraday, but things remain shaky until SPX regains the Risk Pivot (currently 6,950).

We also must make mention of the nasty moves in gold, silver, and BTC. They all violently declined the last few days. On Wednesday’s “Brent’s Macro Corner” we highlighted how so much of the leading assets (both prices and relative vols) seem like “one trade”, and the problem here is that volatility isn’t always going to remain contained to a given, spasming asset class. Volatility in these assets (which have dominated US equity options volumes via their ETF’s), is a red flag for stocks.

We aren’t being hyperbolic about those options volumes, either. Below is the rolling 5-day average of top US options tickers, note SLV (silver) and GLD (yellow) are now bigger than NVDA, TSLA – second only to SPY & QQQ. Late last week SLV options volume did 6.3mm which was only second to SPY. Does this mean that SPX is going to tank if gold & silver keep dropping? No, but with huge options volumes we worry about short term “infections”. But, maybe the worst is over for this space – we will be watching for IVs to regulate as a signal (GLD IV Rank = 94%, SLV 82%). Further, there were a lot of people asking on Friday “What just happened with gold and silver?” If you are asking that question on Friday then you live in a hole. These things broke days, event weeks ago – they just broke to the upside.

Lastly – SNDK. We talked nonstop about this name and it’s bananas IV into earnings. The stock was up +125% for the month & into earnings with IVs in the 100’s. Post earnings the stock was up 23%(!), and puked all that back on the cash open. We don’t want to overstate SNDK’s importance to the equity market writ large, but it is the currently the ultimate expression of bullish exuberance. Interesting that it’s now having similar spasms to gold and silver…

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