Macro Theme:

 

Short Term Resistance: 4,450 – 4,465 (SPY 445 Call Wall)

Short Term Support: 4,415 (SPY 440) – 4,400

Risk Pivot Level: 4,400

Major Range High/Resistance: 4,500 Call Wall

Major Range Low/Support: 4,200 Put Wall

‣ We maintain a bullish stance while the SPX is >4,400 and below the 4,500 Call Wall (updated: 7/3/23)

‣ We anticipate declining market volatility into 7/21 July OPEX (updated: 7/3/23)

‣ A downside break of 4,400 is our “risk off” signal (updated: 7/3/23)

 

Founder’s Note:

Futures are a few points higher to 4,480, ahead of 8:30AM ET CPI data. For today major support is at 4,415 (SPY 440) – 4,400. The next level below there is 4,350. Resistance above shows at 4,450 – 4,465 (SPY 445 Call Wall ). Above there is a further cluster of resistance arund 4,480. With a large positive gamma position we continue to look for low volatility in markets. Our max open/close range is 0.84% for today – and the major threat to that is an errant CPI print. Zooming out, our best case upside scenario into next week is a tag of the 4,500 Call Wall.

As you can see below there are currently very few options positions >=4,500, and gamma should increase into next Wednesday which may tighten the trading ranges down in the 4,400 – 4,500 area. Those looking to express upside are likely better off in single stocks. See yesterday AM’s note in regards to the volatility dynamics around today’s CPI data.

Getting a lot of attention this AM is the call-heavy CBOE Put/Call ratio – its lowest reading since Nov ’21. This is being taken as “animal spirits”, but animal spirits was at the start of June when call skew blew out.

Specifically, we flag two issues with analysis that flags this ratio as overtly bullish:

1) As we highlighted yesterday, there are big pockets of call activity – but these put/call ratios are more about a lack of put volume.

Shown below is total call volume (white) vs total put volume (red). Call volume is fairly elevated – but this is more about put volume near 1 year lows.

2) The “all exchange” PC ratio (white) is much more in line with recent readings, vs the CBOE PC Ratio (blue). Its not clear to us why the CBOE would be so much lower that “all exchanges”. Some products like SPX & VIX are only listed on the CBOE, but those PC ratios are not responsible for the low CBOE reading. It could be related to some type of CBOE exchange trading mechanism that was heavily utilized, like floor/block trades or spreads. Whatever happened, it seems isolated to the CBOE.

3) For extra credit, this is our “equity only” PC volume ratio (white) and PC open interest ratio (blue).

The takeaway here is that this is not (yet) June where call skews blew out due to long call demand. We suspect there is a fair amount of overwriting here. What is also interesting to us here is the low volatiltiy and lack of put demand. This is a market focused on “how much upside” vs “is there downside risk”. These periods can last for some time, and from our seat we don’t anticipate any weakness until next week.