Macro Theme:

 

Short Term SPX Resistance: 5,250

Short Term SPX Support: 5,200

SPX Risk Pivot Level: 5,200

Major SPX Range High/Resistance: 5,300

Major SPX Range Low/Support: 5,000

‣ Market focus is on 4/10 CPI & 4/11 PPI. IV is relatively high into these events, which makes vanna a key flow later this week. As such we anticipate a large equity move <=5,100, or up into 5,300.*

‣ 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.*

*updated 4/8

**updated 3/19

 

Founder’s Note:

ES & NQ futures are both flat at 5,250, and 18,300.

Key SG levels for the SPX are:

• Support: 5,200, 5,174, 5,147
• Resistance: 5,220, 5,250, 5,265
• 1 Day Implied Range: 0.61%

For QQQ:

• Support: 440, 435, 430
• Resistance: 445

IWM:

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

  Call Wall

42-day TBill auction at 11:30AM ET, 3-year TNote auction at 1pm ET.

As per yesterday’s note, traders are likely sitting on their hands until tomorrow’s CPI print. 5,200 – 5,220 (SPY 520) is the strike range with largest amount of gamma, and our target trading zone again for today. This tight trading range was on display yesterday (yellow box), with markets immediately resorting back to anemic movement after Thursday’s volatility spasm.

That spasm served to jack up implied vols, and draw more attention to the CPI tomorrow and PPI Friday. This IV has pumped up vanna as a significant flow, as shown in our vanna model. The gap between the base delta (gray) and IV-adjusted delta (purple) highlights the size of flows that may shift simply as a result of vols shifting up or down.

Because there is a rather significant event-vol tied to 4/10 CPI, we know that IV will shift simply as a function of the print itself, which will invoke flows into the market. This should trigger the SPX away from 5,200, with a bullish print pushing equities toward 5,265 (SPY 525) and a bearish print bringing a quick test of 5,150.

While we await more interesting flows in equities, we wanted to flag unusual vols in gold. Gold is at all time highs, having increased ~6% in the last ~2 weeks. Macro pundits are flagging a range of catalysts from Chinese demand to problems in monetary policy. Regardless of narratives, gold is breaking out and vols are increasing (gold up, vol up).

Below we’ve plotted the Gold VIX (GVZ, top) vs GLD (bottom). You can see from this top metric that GLD vol is indeed percolating, but still within the range of recent history. From a long term perspective, GLD vol has plenty of upside left which tells us this is not a blow-off top, and a dangerous place to be naked short.

Diving in, there is often a call skew in GLD, as there is currently. However IV’s are now more elevated than at any time in the last several months. Shown below is 1-month skew, with the shaded cone representing the range of IV’s over the last several months. The signal here is that calls are likely a bit expensive due to the rising IV & that call skew (i.e. short term overbought), and so traders that want to express upside may want to do using call spreads or other structures which help to offset higher IV’s + skew.

What is tricky here, is there is no clear catalyst for price action to stall. Generally with single stocks or the S&P, we can point to a specific event, like earnings, that will be a trigger for a shift in vol. It’s likely the CPI/PPI could be a short term trigger, and if gold starts to move up off of those numbers it could do so rather violently as “gold up, vol up” takes hold.

Conversely, if the GLD price stalls out, vols should start to drop, which could add to some selling pressure to GLD and lead to lower prices. This suggests that those shorting may want to use put spreads to offset declining IV into the face of lower prices (gold down, vol down).

As GLD is obviously based on the price action of the commodity, it makes using gamma levels in GLD a bit more speculative. Viewing gamma levels from a sentiment perspective, we see 220 GLD is the short term overhead top, with 210 support. Positions are indeed building in the 225 – 230 area, which is bullish. We’re honestly unsure how/if CPI could somehow be construed as GLD-bullish, but should prices start to move up we will respect the distance it could travel. Price action trumps narratives.