Macro Theme:

 

Short Term SPX Resistance: 5,115 (SPY 510)

Short Term SPX Support: 5,000

SPX Risk Pivot Level: 5,000

Major SPX Range High/Resistance: 5,200 (SPX Call Wall)

Major SPX Range Low/Support: 4,800

‣ Post-FOMC price levels:

• We see a large gap in support from 5,100 to 5,000. Volatility likely remains elevated for several weeks should this gap fill.
• Upside resistance is at 5,150, then 5,200. Realized vol likely declines sharply following an initial move higher.

*updated 4/24

 

Founder’s Note:

ES +42 bps to 5,112. NQ futures +70 bps to 17,775.

Key SG levels for the SPX are:

• Support: 5,015 (SPY 500), 5,000, 4,975
• Resistance: 5,075, 5,100, 5,115 (SPY 510)
• 1 Day Implied Range: 0.63%

For QQQ:

• Support: 425, 420
• Resistance: 430, 438

IWM:

• Support: 195, 190
• Resistance: 200, 201, 210

NFP, 8:30 AM ET, ISM PMI 10AM ET

AAPL +5% post ER to 183

Yesterday equities caught a bid, resulting in the S&P pulling up into the noted 505 SPY resistance level (SPX 5065). Futures are again higher this AM, buoyed by a positive reaction to AAPL’s earnings (+5%). However, the big catalysts of NFP (8:30AM ET) & ISM PMI (10AM) are lined up this AM. This means that while the rally from yesterday into this AM feels good, it could reverse quickly back into 5,000.

We believe these data points should trigger a move in vol, which will drive a more directional price move into next week (vs the transient “ping-pong” zone of 5,000-5,100). Accordingly, we are watching 5,150-5,165 as major resistance for next week. To the downside, 5,000 – 4,975 remains the major zone of support.

Here, we turn to vol.

Into April lows there was a large IV premium built up, which corresponded with the VIX near 18. This premium appears as the blue plot nearly touching the dotted, 90th %’ile blue line (red arrow). Now that premium has dropped, which gives us a baseline that vanna is a smaller force as a driver for higher equities.

We’d also remind readers that realized vol was very sluggish in through the April selloff. This meant that VIX of 18 represented a high IV premium. If IV were to ratchet higher (say 1% average daily SPX moves, which is a 16% vol), then returning to the 90th percentile premium would represent a ~25 VIX.

You can frame this through other volatility lenses, too. Here we show SDEX, which measures a 1 std dev OTM SPY put vs an ATM put. As you can see, this index is back to all-time lows, which reveals that out-of-the-money put demand has dried up. Again, this highlights that there is little vol to crush from this stage, and what little left there is, is likely squeezed out by benign NFP/ISM prints, today. With bullish data prints a “final extraction” of IV would likely boost us up over 5,100, and setup 5,150-5,165 as resistance next week.

What happens in a downside scenario is less clear. As we noted above, realized SPX vol has been quite sluggish, and because we view 5,000-4,975 as such major support, we don’t think the SPX can drop sharply through that zone without some grind/testing. Said another way: we’d have to wear that support range away. Accordingly, IV’s would probably shift moderately higher if we test that range, as they did into the April lows. However, barring an absolute debacle of a print(s) today, or a major jump in geopolitcal issues, we do not think a break of 5,000 – 4,975 is on the table until OPEX week (5/10-5/17).

Regardless of timing, should be break that 4,975 level, we think it opens up larger moves in realized vol, which in turn ramps up implied vol. This may invoke downside hedging flows, which could drive equities down into the 4,800 area. We see 4,800 as a major low due to inflection points in our models in that area.

Finally, we did want to draw some attention to small caps. In yesterdays Member Q&A, IWM’s were brought up as a possible break-out play (H/T Sean T). If today’s data is bullish, it does seem that IWM’s, currently 200, have room to run up into the 210 area. More interestingly, the call IV seems objectively low. Shown below is 1-month skew, and you can see that IV’s are at or below the shaded statistical range. This is not the case for SPY or QQQ. This could be a signal that IWM sees more relative upside into OPEX.