Macro Theme:

Short Term SPX Resistance: 5,300

Short Term SPX Support: 5,250

SPX Risk Pivot Level: 5,200

Major SPX Range High/Resistance: 5,300

Major SPX Range Low/Support: 5,000

‣ 5,300 is the short term upside target.*

‣ 5,200 is critical support, up from 5,100 on 3/20. Below 5,200 is our risk off indicator.*

‣ 5,300 is our target into April OPEX.*

‣ NVDA’s event on 3/18 failed to renew the call bid in the chip sector, likely triggering longer term consolidation in the space (ref: 216 in SMH).**

*updated 4/1

**updated 3/19

Founder’s Note:

ES are +35bps to 5,325. NQ futures are +48bps to 18,565.

Key SG levels for the SPX are:

• Support: 5,269, 5,250, 5,210, 5,200
• Resistance: 5,275, 5,300
• 1 Day Implied Range: 0.66%

For QQQ:

• Support: 445, 440
• Resistance: 450, 460

  Call Wall

IWM:

• Support: 210, 207
• Resistance: 215

  Call Wall

TLDR: The

Call Walls

rolled higher across the board, with 5,300 the next upside target for SPX, 450 for QQQ, and 215 for IWM. Implied vols are very low, suggesting traders are pricing in little risk in the days ahead. Realized volatility continues to contract, which allows IV to further contract, keeping a vanna tailwind in place for major indices. This is all bullish, and remain so until/unless SPX <5200.

As stated, options positions have been rolling at a predictable cadence over the last several months, which has kept the S&P locked into the channel shown below. This is an extension of the “risk on” sentiment out of March OPEX + FOMC (see previous notes).

Shown below is SPX gamma by strike with 5300 now the dominant upside strike. The setup is exactly the same for SPY, with 530 the large upside strike, but little positioning above that area. As the SPX moves toward 5300, positions should build above that strike, which should in turn lift the

Call Wall

to a higher strike. Further, put strikes, often short puts, fill in at strikes below which roll up our “risk-off” levels. Currently that risk-off level rests at 5200, but that likely slides higher as positions roll up.

As strikes grow in gamma size, estimated daily trading ranges should also contract, which deflates vols, and these flows all feed upon themselves until either April OPEX or a macro trigger clears the deck. With that our 1-day SG implied move is a fairly tight 66bps, we would expect to see that shift towards 50bps in the coming days.

April OPEX is a full 3 weeks out, and while some macro pundits are jawboning about various inflation/jobs/etc prints, the options market is pricing in very little risk to any data in the next several weeks. You can see this via the very flat term structure, shown below.

While the SPX daily moves ratchet down (i.e. tighter, sleepier activity), single stocks are still priced for higher movement. We discussed this as the start of Thursday’s Q&A session, and you can see it reflected in the record low CBOE 3 month correlation index. This informs us that IV’s for the SPX are very low vs those of the top 50 S&P500 single stocks.

This correlation trade has been in focus for some time, with sectors like semis leading the chart over much of this year. Post March OPEX & NVDA’s product event, our view was the the semi sector would start to contract, and we liked other sectors, particularly Mag-7s (ex TSLA/NVDA) to pick up relative performance. What is interesting above performance since then is that semis have stayed relatively flat, but it is small caps, financials & industrial outperforming. The megacap stocks have failed to catch a bid, as AAPL in particular contents with new DOJ suits.

We see little reason for this correlation trade to break, until there is a risk-off event. A risk-off event would lead to selling in all stocks, which would likely slam correlation higher.

The sectors which currently seem to be catching traders eyes are those with increasing skew ranks (higher on the Y axis). In particular we can see housing (XHB), real estate (XLRE), transportation (IYT) with high relative ranks, which implies calls are catching a bid. Tracking how these shift day-to-day (in the EquityHub history) may be an interesting way to track which sectors could outperform.