Macro Theme:

Short Term SPX Resistance: 5,360

Short Term SPX Support: 5,300

SPX Risk

Pivot

 Level: 5,315

Major SPX Range High/Resistance: 5,400

Major SPX Range Low/Support: 5,000

Key dates ahead: 8/13 PPI, 8/14 CPI, 8/16 OPEX, 8/22-8/24 Jackson Hole, 8/27 NVDA earnings

Elevated implied vols are unlikely to fully retreat due to the geopolitical situation, upcoming Fed dates, and the election. (i.e. VIX is sticky >20)

• Upside scenario:
• We flip back to “risk on” with a close >5,315, which implies a retest of 5,400
• With a close >5,315, our upside max target into 8/22 is 5,400, as any declines in implied vol wane due to key data
• Downside scenario:
• <5,300 is negative gamma territory, and a lack of price stability, with price fluid down to 5,200 support
• <5,200 is “risk-off” as it implies a test of 5,000
• Ultimately, we eye a 5,000 low into 8/16 OPEX

Founder’s Note:

Key SG levels for the SPX are:

• Support: 5,300, 5,277, 5,250, 5,200
• Resistance: 5,320, 5,350, 5,400

For QQQ:

• Support: 440, 430
• Resistance: 450, 457

IWM:

• Support: 200, 190
• Resistance: 210, 216

Futures are flat after the SPX recaptured our key “risk on” level of 5,315. With that, we are looking for a move up to 5,400 into next week as very short term IV contracts, and positive gamma peaks. Should the SPX break <5,300, we would stop out any equity longs/vol shorts, and be on watch for a quick retest of 5,200 due to the onset of negative gamma <5,300.

The reality here is that positioning is overall very light, as traders monetized put positions earlier this week. The result is that the “peak” of positive gamma is a mere ~$800mm (vs 2-4x that into July market highs) due to a lack of call positioning, and negative gamma appears to wane <5,000 as traders seem to have been slow to add to new puts positions. Zooming out beyond the short term positioning dynamics (outlined below), this overall very much feels like a “wait and see” environment.

In yesterday’s note we highlighted that implied vol had come down since Monday’s highs (gray), but was likely to stay “sticky” near current levels (ex: VIX staying in the 20’s). This morning (teal) we see SPX term structure perched just atop its statistical 90-day range (blue shaded cone). Yes, we may be able to bet on some weekend decay, but vol is likely to hold a bit of a bid into 8/13 PPI & 8/14 CPI. Then we turn to the main events of Jackson Hole 8/24 & NVDA ER 8/27 (which hold event-vol premium, too).

What this may mean for equity longs is that we may see a fairly quick lift into 5,400, but that level is where we are likely to catch some positive gamma resistance (which leads to “pinning”), and run out of vanna-fuel (i.e. IV’s stop their rapid decline).