Macro Theme:

 

 

Short Term SPX Resistance: 5,050

Short Term SPX Support: 4,980

SPX Risk Pivot Level: 5,000

Major SPX Range High/Resistance: 5,100

Major SPX Range Low/Support: 4,800

‣ 5,050 remains first resistance, with 5,100 the likely high into next weeks 5/1 FOMC. We think 4,975 – 5,000 will remain as major support in through FOMC.*

*updated 4/23

 

 

Founder’s Note:

ES +40bps to 5,064. NQ futures +40bps to 17,419.

Key SG levels for the SPX are:

• Support: 5,016, 5,000 4,976, 4,950, 4,900
• Resistance: 5,030, 5,050, 5,100
• 1 Day Implied Range: 0.57%

For QQQ:

• Support: 420, 415
• Resistance: 425

IWM:

• Support: 195, 190
• Resistance: 200, 202, 205

42 week TBill auction today at 11:30AM ET, 2yr note auction at 1PM.

The theme of yesterday was “vol crush”. In line with our review yesterday AM of how SPX implied vols (i.e. VIX) were expensive relative to realized, the CBOE published this chart, which showed that assets across the board had high implieds relative to realized.

This vol premium was broadly zapped yesterday, as framed by both the VIX declining from ~18 to ~16, but more specifically in SPX term structure, shown below. Here, you can the at-the-money IV shift from Friday (gray) to now (teal). This vol deflation was indeed a lift for equities.

Accordingly there was a big 1.3% intraday move into the early AM, but those gains consolidated, closing the S&P right at SPY 500 (33bps open/close move). This was mean reversion back to the big gamma SPX 5,000 0 5,015 (SPY 500) zone on full display (see y’days note).

Critical to moves in these environments, and determining the strength and length of rallies, is breaking down the transmission mechanism for higher stocks.

Obviously, as laid out above with the notes on vol contraction, vanna was a major factor. Linked to that was heavy put selling, as you can see below in the

HIRO

chart. This chart shows the aggregate

HIRO

flow across all S&P500 stocks, and the

put deltas

sold (blue line) is above that of calls (orange), suggesting that put selling was a larger driver of equities than long calls.

Put selling in a vol-crushing environment is great, but we need long call purchases to provide a more extended rally. Else, this is simply an oversold bounce. This is because as puts are sold to close and/or shorted, as equities go higher (and vol lower), the put values move toward zero, which decays the related long delta hedging flow. If/when calls are purchased, higher equity prices increase the amount of long deltas that need to be bought. This, in our view, provides more extended rally fuel.

While the put-cover gave equities a boost, we’re not sure that major call buyers will come in before FOMC, which, in the short term, limits the rally. 5,050 remains first resistance, with 5,100 the likely high into next weeks 5/1 FOMC. We think 4,975 – 5,000 will remain as major support in through FOMC. Accordingly vols likely contract a bit more, but we are not, on net, expecting much in terms of SPX price action.

Further, attention likely turns to single stock stories as earnings pick up in earnest, tonight, with TSLA reporting (8.2% implied move), followed by META tomorrow, and GOOGL/MSFT on Thursday.