Macro Theme:

 

 

Short Term SPX Resistance: 4,900 (SPX Call Wall)

Short Term SPX Support: 4,850

SPX Risk Pivot Level: 4,800

Major SPX Range High/Resistance: 4,900 (SPX Call Wall)

Major SPX Range Low/Support: 4,500

‣ 4,900 – 4,915 is our target high into 1/31 FOMC.*

‣ Traders, and SG models, are pricing in low volatility/risk into 1/31 FOMC*

‣ We look for a sharp directional move post-FOMC & into 2/16 expiration, with 5,000 the key upside strike. Major downside “risk-off” occurs on a break of 4,800, with 4,700 the first major target below there.*

*updated 1/26

 

 

Founder’s Note:

ES Futures are flat to 4,915. Key SG levels for the SPX are:

• Support: 4,865 (SPY 485), 4,850, 4,826, 4,815, 4,800
• Resistance: 4,873, 4,900, 4,915 (SPY 490

  Call Wall

  )

• 1 Day Implied Range: 0.74%

For QQQ:

• Support: 424, 420, 400
• Resistance: 425, 430

IWM:

• Support: 195, 190, 187
• Resistance: 197, 200

Things are light on the macro data side until 1/31 FOMC. However, there are a slew of important earnings today & tomorrow including:

‣ Monday, Jan 29th (AM): SOFI

‣ Monday, Jan 29th (PM): SMCI

‣ Tuesday, Jan 30 (PM): AMD, MSFT, GOOGL, and SBUX

‣ Wednesday, Jan 31 (AM): BA and MA

‣ Wednesday, Jan 31 (PM): QCOM

‣ Thursday, Feb 01 (AM): RCL, PTON, and MRK

‣ Thursday, Feb 01 (PM): AMZN, AAPL, and META

‣ Friday, Feb 02 (AM): XOM, CVX, ABBV, BMY, and CI

For today we expect the 4,900 SPX

Call Wall

to SPY 490 (SPX 4,915) to remain heavy overhead resistance, with SPY 487 (SPX 4,886) & 4,850 to hold as major support. The SPX

Call Wall

did roll higher to 4,950, but that was primarily due to put positions (likely short) being added to 4,900.

While we still see 4,900 as short term resistance, because the SPX

Call Wall

has now rolled to 4,950 we would not consider the SPX overbought if the Index closes above 4,900, which was the

Call Wall

last week. Further, 4,900 is expected to remain a major gamma strike in through 2/16 OPEX, suggesting that should the SPX move above that level, 4,900 would function as major support/base for another leg higher to 5,000.

As laid out Friday, we see little reason for the SPX to make its move before Wednesday’s 1/31 FOMC. The S&P has been locked in the yellow range below, pinned in by the large gamma at the 4,900, and SPY 487 strikes. Clearly earnings from a several key semi + Mag7 stocks could make an impact, but it will likely be up to the Fed to spark the next major move. Whichever direction prevails out of the FOMC, we believe, should extend into Feb OPEX on 2/16.

Accordingly, should we see the SPX close >4,900, we think it will make a very quick move to 5,000 – a strike which contains a fairly strong number of call positions. To the downside there are several key levels, the first being 4,800. There is large, supportive gamma at that 4,800 strike, and so we will be watching for a close <4,800 to signal a more sustained “risk-off move”.

Last Wednesday we dedicated our note to the topic of low correlation, which comes into focus with the start of large earnings, and FOMC. An hawkish FOMC would certainly shift correlation higher, and likely lead to a big jump in index implied volatility, which is at multi-year lows. A bullish Fed likely shoves correlation (shown by COR1M below) back to July lows, which would sync up with a VIX <12.

Helping to drive this low correlation are the Mag 7 vols, which are fairly elevated as you can infer from the VIX on GOOGL, below. However, we do not see particularly heavy call skews in these largest stocks (MSFT, GOOGL, AAPL) despite these stocks being >=all time highs. This could leave some space for call buying in Mag 7 with good earnings + dovish FOMC.

Where there are some heavy call skews are in the semi’s, with AMD & SMCI reporting over the next two days. This suggests calls are really rather rich heading into earnings, with AMD/SMCI having risen 30% & 65% this year, respectively, and the SMH Semi-ETF +8%. We feel that positive earnings performance may have been pulled forward in this sector, as the combination of incredible recent stock performance and elevated call skews make a high bar for a major bullish earnings jump.

Flat earnings and/or hawkish Fed statements could lead to a sharper relative contraction in this space.