Macro Theme:

 

 

Short Term SPX Resistance: 4,412 (SPY 440)

Short Term SPX Support: 4,350

SPX Risk Pivot Level: 4,315

Major SPX Range High/Resistance: 4,450

Major SPX Range Low/Support: 4,200

‣ Equity direction is likely to be driven by Wed PPI/FOMC mins + Thursday’s CPI. 4,450 SPX is the short term upside target out of these events*

‣ 4,500 SPX is max upside into Oct OPEX 10/20*

‣ 4,200 SPX is the Oct OPEX downside target if PPI/Fed Mins/CPI datapoints are bearish*

*updated 10/12

 

 

Founder’s Note:

ES Futures are higher to 4,425. Key SG levels for the SPX are:

• Support: 4,377, 4,350 & 4,300
• Resistance: 4,400, 4,412 & 4,425
• 1 Day Implied Range: 0.76%

For QQQ, resistance is at the 375 Call Wall. Support is at 370. The S&P Call Walls have shifted to 445 SPY & 4,450 SPX. These levels are now the top end of our range (from 440/4,400 yesterday).

Today’s main event is the 8:30AM ET CPI. The importance of this figure is its impact on rates – the change of which seems to be dictating equity prices. To illustrate this we’ve below plotted the US10Y yield vs the VIX, and as you can see over the past month the two have moved in lockstep.

Todays ATM SPX straddle is $31/70bps (ref 4,395 & 24.5% IV). This 70bps market expectation is slightly higher than our 76bps SG1 Day Implied Move, but both suggest that volatility today should be relatively muted – particularly for an upside equity move.

The reason for stalling to the upside is that gamma builds sharply up into the 4,450 area (peak in the left chart), and at that point vanna fuel wanes, too (trough in the right chart). If the SPX is >=4,300 these forces are compounded by next weeks OPEX as charm picks up, which serves to concentrate gamma (and related hedging flows) around large options strikes.

If the CPI comes in near expectations and rates stay flat or lower, we likely see equity volatility/VIX decouple and accelerate lower over the next week. However, a hot CPI likely triggers an equity slide, with 4,350 & 4,300 the downside targets for today. That may spark a larger equity slide into next week, with the major 4,200 area as more significant support. This implies that volatility would remain more elevated in through next weeks OPEX.