Macro Theme:

 

 

Short Term SPX Resistance: 4,300

Short Term SPX Support: 4,200

SPX Risk Pivot Level: 4,225

Major SPX Range High/Resistance: 4,300

Major SPX Range Low/Support: 4,200

‣ Nov 1st FOMC is a major turning point for equities*

*updated 10/23

 

 

Founder’s Note:

ES Futures are +45 bps to 4,260. Key SG levels for the SPX are:

• Support: 4,213, 4,200
• Resistance: 4,250, 4,300
• 1 Day Implied Range: 0.83%

We begin today with a view of implied volatility, via the Fixed Strike matrix,below. As you can see, IV’s from Friday to this morning are down for all expirations pre-FOMC, a trigger which was sparked by yesterday’s reversal in rates. What is key about this is that the market appears to be breathing a “one week” sigh of relief, which allows front end vols to come in, which is in turn supportive of equities. While we may therefore have short term support, those elevated longer dated IV’s (i.e. the sea of green out past Nov 1 FOMC) inform us that a year-end equity rally is likely predicated on an “all clear” from Powell.

Its out of 11/1 FOMC that a larger directional move likely plays out, and we think its a fairly quiet S&P500 until then.

To this point we continue to eye 4,300 as a high into Nov 1 FOMC due to not only large gamma at that strike, but also a trough in our Vanna Model. The purple line here reflects IV-adjusted dealer delta, and that trough at 4,300 estimates where an equity lift from lower IV’s stalls out. To the downside we continue to view the 4,200 SPX

Put Wall

as support.

 

Eyes this week also now shift to earnings, with MSFT + GOOGL reporting tonight, followed by META tomorrow and AMZN Thursday. As you can see, traders are pricing in ~4% moves from MSFT + GOOGL tonight. While we do not have a forecast on earnings, we do think these implied moves are on the lighter side given both the reaction to recent large names (TSLA + NFLX), but also the volatility in the macro environment. To this point both MSFT & GOOGLE had intraday high-to-low ranges yesterday of 2.75%.