Macro Theme:

 

Short Term SPX Resistance: 5,350

Short Term SPX Support: 5,265

SPX Risk Pivot Level: 5,265

Major SPX Range High/Resistance: 5,320 (SPY 530)

Major SPX Range Low/Support: 5,000

• For the week of 5/20*:
• 5,300 is a large base of support, with large upside targets at 5,350, 5,365 (SPY 535) and 5,400*
• Monday & Tuesday are likely to have smaller relative movement, with trading ranges increasing on Wednesday & Thursday*
• Wednesday is VIX Exp, FOMC Mins & NVDA ER
• We like 1-month, ~25 delta SMH calls at IV of ~25% as a way to play current bullish market dynamics and a positive market reaction to NVDA earnings on 5/22. SMH IV’s are near statistical lows despite upcoming NVDA earnings.*

• 5,265 is our risk-off. A break <5,265 pushes the S&P into a more fluid, risk-off zone, with 5,200 becoming the downside target.*

*updated 5/20

 

Founder’s Note:

ES futures are +10bps to 5,333. NQ futures are +18bps to 18,6668.

Key SG levels for the SPX are:

• Support: 5,300, 5,265
• Resistance: 5,320, 5,324, 5,351
• 1 Day Implied Range: 0.54%

For QQQ:

• Support: 450, 447, 440
• Resistance: 455, 460

IWM:

• Support: 205, 200
• Resistance: 210, 212

Following OPEX, we see the SPX

Call Wall

has rolled to 5,400, with the SPY

Call Wall

remaining at 535 (SPX ~5,365). We read these as bullish developments, and we give edge to 5,300 now forming as a base of support from which the SPX can grind higher. The “grind” may be particularly in play today to tomorrow, and then we look for volatility to pick up on Wednesday due to VIX exp + FOMC Mins + NVDA ER. For today we see SPY 530 as a light level to be digested, with 5,350 larger resistance. The SPX then hits a larger band of resistance at 5,350-5,365 (SPY 535

Call Wall

). This 5,365 is our target area into Wednesday AM.

Please see Friday’s note for our preferred way to play this week (SMH Calls), and we would look to enter this exposure today as a way to both express general market upside, and NVDA ER’s.

Before NVDA earnings hit, there are 12 Fed speakers (Mon/Tues/Wed, for details see Events tab on our dashboard using the “Low” & “Medium” Impact settings) + Yellen (tomorrow 4AM EST). While Yellen could maybe move the needle, the other 12 speeches would really have to deviate from norms in order to move the market. This is because, despite Friday’s OPEX, we remain wrapped in the big embrace of positive gamma, and remain so if the SPX >5,280. On this note our SG 1-day Implied Range is just 54bps – the lowest in recent memory (more positive gamma = tighter ranges).

For traders, that means dips are likely to be bought, and rips likely to be sold. Therefore we look for price mean reversion, and this should happen around the

large gamma strikes

outlined above (and in the chart below).

Our risk off level is 5,265. Below that level we likely lose the positive gamma support, leading to a test of 5,200.

As often discussed, one of the features of equities since Powell’s

pivot

in Oct ’23, was correlation driving lower, and stocks ripping. Correlation going lower signals that traders are picking specific stock longs (like semis, AI, etc), and macro concerns go into the background. This created major outperformance in top sectors vs the broader market.

That correlation trade overheated in early April, leading to market weakness, triggered by some macro concerns like rates & geopolitics. Correlation then went up, and stocks went down.

In May we ping-ponged back with stocks ripping, and correlation going lower. The difference here is that call skews are currently not as elevated as they were into the start of April. That suggests to us that if NVDA earnings are great, it could reignite animal spirits, which is more sustainable because calls are not “overbought” (i.e. high IV’s). This could send correlation to new all time lows, and major equity indices to more all time highs.

While implied vols are very low for SPX, we think SPX has to contend with large positive gamma, and 0DTE flows, which may mute performance relative to specific sectors. This is why we are preferring to look at going long equities via SMH, as we believe there is a negative gamma dynamic which could create more relative volatility. That volatility, we think, could be expressed to the upside starting this week, and fueled after NVDA ER.