Macro Theme:

 

 

Short Term Resistance: 4,550

Short Term Support: 4,500

Risk Pivot Level: 4,500

Major Range High/Resistance: 4,600 SPX Call Wall

Major Range Low/Support: 4,400

‣ The first week of Sep (post Labor Day holiday) is likely lead to lower Index IV’s which supports stocks into 9/11.*

‣ Entering into the week of 9/11, there are a litany of catalysts including: CPI (13th), big Sep OPEX (15th), VIX Exp & FOMC (20th). *

‣ While we have no particular reason to be bearish, we note that a strong rally into OPEX/VIX Exp would certainly clear up the downside “padding” that we’ve been enjoying (and discussing) over the last few weeks. This could make downside into end of September/October “more available”. Traders looking to hedge may want to therefore consider put positions before the 13th.*

*updated 9/5

 

 

Founder’s Note:

Futures are off fractionally to 4,515. Our daily range estimate is a tight 68bps, with first resistance above at the 452

Call Wall

(4,525 SPX), then 4,534. Support is at 4,500 then down to 4,455 (SPY 445).

 

In QQQ, support is at 375 & 370. Resistance is at 377 & 380.

The theme for the last two weeks has been “volatility crush”, as shown in the term structure plot, below. The release IV & associated vanna flows helped to buoy the S&P into last week, leaving the S&P tethered to the large gamma positions around 4,500.

With the bulk of implied volatility premium extracted (i.e. most of the vanna fuel is gone), there is not an obvious source for lift here in the S&P. That being said, we anticipate this week to be rather quiet, which sources from a lack of major data points/events (ISM tomorrow @10AM ET is the only major data), and a buildup of gamma that should only increase over the next week. This gamma buildup should serve to tighten down S&P trading ranges, and this likely allows implied volatility to continue its decline which is a light tailwind for equity prices.

Therefore we think this week will largely be characterized by directional “drift” as the S&P mean reverts into

large gamma strikes

, with 4,500 currently the largest strike. If volatility continues to trend lower, it does support the S&P remaining >=4,500, but we do not antcipate any large directional movements this week.

 

This relative calm gives way next week into CPI (9/13), equity OPEX (9/15), followed by VIX OPEX & FOMC (9/20). This window should lead to larger directional swings, as large options positions are cleared out, and catalysts can spark directional movement.

As OPEX clears out positions, these big datapoints (CPI, FOMC) should shift macro sentiment & equity prices. Therefore we should see an uptick in volatility into the end of September. If you are looking to hedge downside you may want to enter positions early next week.