Macro Theme:

 

Short Term SPX Resistance: 4,450 Call Wall

Short Term SPX Support: 4,400

SPX Risk Pivot Level: 4,300

Major SPX Range High/Resistance: 4,450

Major SPX Range Low/Support: 4,000

‣ Barring a major CPI miss, one has to favor a final Christmas rally out of late Nov and into the December Expiration. Assuming that the CPI is in line, we’d anticipate the equity market high being Wednesday AM 11/15, with consolidation happening into & around 11/17th (Equity OPEX). This would clear the way for a final, year end rally. 4,500 is our current upside target in that scenario, and that would adjust based on call positioning.

*updated 11/9

 

Founder’s Note:

ES Futures are -25bps to 4,420. Key SG levels for the SPX are:

• Support: 4,400, 4,350
• Resistance: 4,424, 4,438, 4,450
• 1 Day Implied Range: 0.67%

This week the key events are: 11/14 CPI, 11/15 VIX Expiration & 11/17 OPEX.

Current view: As anticipated (here, here), equities have maintained strength and are likely to do so in through tomorrow. Options positions should stop being supportive of equities after VIX expiration, with a window of expiration-induced weakness arriving with 9:30AM ET Wed VIX expiration, and holding through next Tuesday. If CPI tomorrow is a non-event, then we cannot dismiss one more leg higher into the 4,450

call wall

for Wed AM VIX expiration.

There was a remarkable move higher on Friday, as the S&P500 pushed +1% higher to close at Friday’s SPY 440

Call Wall.

Our Call Walls have now rolled higher to 443 SPY & 4,450 SPX, which is now the top of our resistance range.

For today and into tomorrow, 440 SPY/4,400 SPX remains a major level, as it is the S&P’s top gamma strike. We believe that equities should be supported by this area today & tomorrow, with the first opportunity for weakness arriving with Wednesday’s VIX expiration (barring a tail print from tomorrow’s AM CPI).

Why do we anticipate some equity consolidation with these expirations? Its due to the build up of short equity vol (VIX/VIX futures) and long call positions that are set to expire on 11/17. Posted below is the sum of single stock

call delta

(purple) vs

put delta

(teal), and as you can see there is quite an imbalance between the two. As these positions roll off, we believe dealers need to adjust hedges by selling some underlying stock.

Further, the downside pressure in equity vol may release as VIX put positions expire on 11/15. This downside vol pressure has been a tailwind for equity prices.