Macro Theme:

 

Short Term SPX Resistance: 5,400

Short Term SPX Support: 5,300

SPX Risk Pivot Level: 5,300

Major SPX Range High/Resistance: 5,400

Major SPX Range Low/Support: 5,000

• 5,400 Call Wall is the top end of our range into 5/24 & Memorial Day Weekend*
• Into the end of May, we look for implied volatility/VIX to continue sliding lower, which supports equities.*
• 5,300 is our risk-off. A break <5,300 pushes the S&P into a more fluid, risk-off zone, with 5,200 becoming the downside target.*

*updated 5/23

 

Founder’s Note:

ES futures are +67bps at 5,363. NQ futures are +110bps to 18,990.

Key SG levels for the SPX are:

• Support: 5,350, 5,320, 5,300
• Resistance: 5,365, 5,376, 5,400
• 1 Day Implied Range: 0.57%

For QQQ:

• Support: 455, 450
• Resistance: 460

IWM:

• Support: 205, 200
• Resistance: 208, 210

Jobless claims 8:30AM ET.

NVDA +6.7% after earnings, to $1,014.

SMH +3.1% after NVDA earnings, to $244.

While the focus is on the blow-out NVDA numbers, its what happens now to the equities, more broadly, that is interesting.

First, these great NVDA ER numbers have smashed SPX implied vol. The VIX this AM sits at lows not seen since the March ’20 Covid Crash, and as we head into a three-day weekend we think there is nothing to stop a further slide into tomorrow.

You can see this IV plunge in SPX term structure, too, comparing last nights pre-NVDA levels (gray) to this AM (teal).

Why does the IV drop matter? Because we believe lower IV’s provide vanna-fuel to guide equities higher. With that, we see SPY 535 (SPX ~5,365) as the first large upside strike that needs to be digested by the SPX. Following that, its the SPX 5,400

Call Wall

that is our target area into Friday.

What is key to note here is that as the SPX keeps heading higher, the positive gamma keeps getting thicker. More positive gamma implies tighter trading ranges (aka less upside volatility). This is why we preferred SMH calls to SPY/SPX calls, because after this initial ES/SPX pop higher, SPX movement should return to a crawl. However, there is more negative gamma in the semis & SMH, so it is more free to move.

In regards to more positive gamma, and reduced SPX movement – going forward that should drag SPX realized volatility lower, which in turn allows implied volatility/VIX to trend lower, too. This is a tailwind for stocks.

Looking ahead, we will maintain bullish market expectations as long as the SPX remains above 5,300, which is now our “risk-off” level. Below 5,300 we would elect to add SPX put positions and/or VIX calls, and look for a re-test of 5,200.

As far as bullish expectations are concerned – those are governed by the

Call Walls

. If the S&P (SPX/SPY) Walls (currently 5,400) continue to roll higher, then we will continue to look for higher SPX prices. In the short term, we also think that shorting VXX/UVXY via risk-defined long puts or short call spreads may be worth a look, as vol likely continues to sink.

Last Friday (and several times this past week) we suggested 1-month 25 delta SMH calls as a preferred way to position into NVDA ER. As those calls should have solid gains today, we will look to either roll them higher, and/or turn them into call spreads to realize some of the gains. We do want to maintain long equity exposure into May month end.