Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 40bps, oil is flat.

Jobs data is at 8:30AM ET.

It remains “blue all over” – that is we continue to be draped in positive SPX gamma. 7,600 is resistance again today. 7,540 is current the big support strike, with support at 7,500 after that. Yesterday showed that big gamma buying/mean reversion remains in play, as the opening dip was bought and the SPX trucked higher into the biggest 0DTE gamma strikes. That “buy the dip” remains holding the edge until/unless our 7,490 Risk Pivot is broken.

While we do have high positive gamma <7,490, we continue to hold that level as our Risk Pivot.

This is because we project potential heavy selling related to a collapse in high call skews, and some negative flows related to the most speculative tech stocks. Remember, we crossed the low correlation trigger just a few sessions ago, and COR1M remains very low <8.

Highlighting the wild divergences in equity vols is our Compass plot, which shows wickedly high +90th %’ile SMH Call IVs (top right), compared to very average vols in SPY (bottom middle). But note QQQ: it has a very rich call skew and the IV rank is +40. That high of an IV rank for an “up market” is very unusual. This is a function of the high-flying tech stocks pumping the tech Index. As we’ve stated many times in recent days: this is a crash up.

There are some signs the energy here is stalling out, and if that happens then there will be some mean reversion in these names that are “infecting the Nasdaq Index” – which is why we watch <7,490 as a bearish signal.

Recently we highlighted the massive size trading in MU options, with yesterday the stock again trading more options premium (~$1.5bn) than both the SPY and QQQ (~$1bn each). In our view this type of notional can move the overall market, particularly if it sparks movement in the likes of SNDK (another massive premium name) and SMH.

Simplifying things, yesterday was the largest market cap loss in MU ever, at a -$94 billion loss. To put this in perspective, we plotted the 1 standard deviation average market cap change for the top 20 stocks over the last month (gray band). Needless to say, these are giant notionals swinging around, which is why we are concerned about stock selling overwhelming local positive SPX gamma.

Thus far the SPX has been quite stable, with NDX showing a bit more volatility over the last 1-2 sessions. If we have a higher correlation move in these names (i..e the whole sector trades off) then we may see sharper index reactions.

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