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 -20bps to 5,250. NQ futures are -100bps to 18,120.

Key SG levels for the SPX are:

• Support: 5,185, 5,165, 5,150
• Resistance: 5,200, 5,210, 5,250, 5,269, 5,275, 5,300
• 1 Day Implied Range: 0.66%

For QQQ:

• Support: 440, 430
• Resistance: 445, 450, 460

  Call Wall

IWM:

• Support: 200, 195
• Resistance: 205, 215

  Call Wall

ISM data out at 10AM ET, 11:30AM Tbill auction, 12:10 ET Powell.

The SPX broke our critical support level of 5,200 yesterday, but that failed to unlock longer dated put/vol buyers. In fact, yesterdays options flow was completely dominated by 0DTE trading, as seen below in the

HIRO

chart. This flow was not particularly large, but it did buy the equity dip, and bring some mean reversion back into 5,200. The fact that longer dated puts nor calls were bought suggests traders are in a “wait and see” mode, with sights possibly on Powell, today (12:10PM ET). We remain in “risk off” mode until 5,200 is recaptured.

 

Yesterday’s trading ultimately led to the S&P losing 64bps on the day, and QQQ -86bps. Things were worse in the rate-sensitive, negative gamma positioned IWM’s, which declined -184bps.

Futures this morning are indicating the SPX is probing back under 5,200, and the threat is that we are wearing away that positive gamma positioning that has provided index stability over the last several months. What is interesting here is that our SG 1-Day implied move remains a tight 66bps, and we did see some SPY positions fill in from 515-520. These positions should add some local stability, and it makes some sense that traders who are Pavlovian-trained to buy dips would attempt to take advantage of recent weakness. It is hard to blame dip buyers, as scooping up each and every small dip has been a successful strategy YTD.

To get a sense of market concerns, we turn to IV’s. What we see is that there is a lift in vol across the surface, and skew has not changed (i.e. there is an not an asymmetric bid for calls or puts). This informs us that traders are now pricing in a bit more volatility, but there is no real fear of a sharp move in either direction. The yellow box below shows how the IV’s for 1month SPX options has lifted uniformly from last Thursday to today. And, to be clear, 1-month SPX options are at 13% IV, which is pricing in daily SPX moves of only 82bps.

In yesterday’s note we dedicated several paragraphs to the risks lurking beneath this markets surface. It’s clear in today’s data that despite recent weakness, traders are not yet believers in materially lower equity prices. We’re not here to say they are incorrect, as Powell may well spark a short cover today, but we do feel that traders are not correctly pricing in the chances of a sharp left tail move. This benign trader sentiment is reflected both in the options flow yesterday (

HIRO

), and the lack of skew shift in vols. On Monday we also flagged longer dated call sellers stepping in, which was a signal that traders were seeing less upside available in stocks. “Less upside” is distinct from “more downside”, and the latter is our major concern at this juncture.