Macro Theme:

 

Short Term Resistance: 4,550 – 4,565

Short Term Support: 4,500

Risk Pivot Level: 4,500 – 4,515 (SPY 450)

Major Range High/Resistance: 4,600

Major Range Low/Support: 4,400

‣ A window of weakness may open with 7/19 VIX expiration, in through the following week (7/24) which may result in a break <4,500

‣ The bullish case remains intact with SPX >4,500*

‣ Risk shifts higher on a break of 4,500, wherein we would look for a test of 4,400 with a VIX shift towards 20*

*updated 7/24

 

Founder’s Note:

Futures are unchanged, holding 4,585. Key SG levels are also largely unchanged, with first resistance at 4,550 – 4,565 (SPY 455). Support below shows at 4,540, then 4,515 (SPY 450) – 4,500.

Support in QQQ appears at 375. Resistance above is at 379/380.

Our view has been that markets would consolidate after last weeks VIX expiration/OPEX and into this week. Today would be the last day wherein we’d consider any post-OPEX flows, with the “flow-baton” being passed to tomorrow’s FOMC.

The 4,500 – 4,600 is the key range range, and between MSFT/GOOGL earnings (tonight) and FOMC tomorrow we should test one of those two bounds. This may then tilt equities into a directional setup for August expiration.

While our

gamma flip

point, the Vol Trigger, continues to slide higher, we do not see volatility meaningfully increase until/unless 4,500 is broken. On this point, the thing which we continue to monitor closely is volatility, as if 4,500 breaks we think there is a risk of IV’s jumping rather sharply (see yesterdays note).

To the upside the 4,600 – 4,615 (SPY 460)

Call Wall

(s) have gained in size, which should provide over resistance if tested.

For today traders are largely expecting “nothing” as shown by the implied moves by expiration, below. Lack of movement is inferred by the high probability (y axis) of the market holiding the ~4,550 area (x axis) for today’s expiration (orange line). Note the big gap between today’s expiration and all future expirations – that wider probability distribution is due to tomorrows FOMC.

Looking back through last weeks VIX/OPEX and this anticipated “window of weakness”, equities are lower but there is a fairly large dispersion in performance. From the 9:30AM ET VIX Expiration the SPX is -75bps, IWM -150bps, and QQQ -300bps.

To be clear this is not an attempt for us to celebrate our market call for weakness, as we were looking for a retest of 4,500 – 4,515 into the S&P which did not yet come into play.

What we did want to document here was the coordination of market movement, and expirations. In this case you may note that the +1 year S&P high (via ES futures) was right at the 9:30AM ET Wednesday VIX settlement (red line, below). That VIX settlement print was also the 1 month low in VIX. We hope that this helps to highlight why these OPEX flow matter so can better position around them going forward.