Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are -70bps, NQ -100bps.

Yields are higher, with the US 10Y tagging 4.8% this AM.

All eyes are on PPI tomorrow & CPI Wednesday.

Support: 5,775, 5,750, 5,700

Resistance: 5,800, 5,900

Equity futures are weak this AM, with VIX >20. We see a large, supportive 0DTE put spread (dealer long/positive gamma) at 5,770 x 5,750. Below that rests a large longer dated puts at 5,700 (dealer short put/negative gamma).

The reality is that this selling has been rather controlled, and the data implies that should the SPX break <5,750 then volatility may move substantially higher (i.e. things might get “pukey”).

A recovery above 5,800 signals a “dead cat bounce” is in play, and we see no major resistance until 5,900. Given the big data prints tomorrow/Wednesday, we think all moves must be actively traded/adjusted (day trades/roll positions, etc).

On the vol topic, we see that SPX term structure reflects higher vols around upcoming PPI/CPI, which may be the last major data points until 1/29 FOMC. However, even though futures are lower this AM we see 0DTE IV’s as rather muted. The ATM straddle is just $42/70bps (ref 5,780 IV 28.6%) – thats what futures are down overnight (where is the vol premium?)!

Consider Fridays 0DTE straddle into NFP was 90bps, and the SPX is implied to open -2.5% since the NFP.

If equities do continue to move lower, the obvious first place for a market low is into Friday’s OPEX, which is followed by Monday’s MLK observance & inauguration (market closed). That day off can stall out vol, however the ultimate “all clear” may not come until 1/29 FOMC. Around this period is when tech earnings pick up in earnest, too.