Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are flat after yesterday’s big 1.8% rally.

Resistance: 6,000, 6,050

Support: 5,950, 5,900

Retail sales & jobless claims: 8:30AM ET.

TSM just reported earnings, and is +4% premarket. This has NVDA +1%.

For several sessions leading into yesterday we saw negative gamma & low stability. We now see a light build-up of positive gamma, with eyes on the 6,000-6,050 zone as heavy positive gamma resistance. This resistance into the >=6k area times with OPEX on Friday (gamma increases as we get closer to expiration).

There are some fairly sizable, supportive positive gamma strikes down through 5,900, and so we will be looking for a bounce/mean reversion on any move lower, today.

We’re not married to longs here, and should the SPX break <5,900 we would shift back to a risk-off stance.

Yesterday’s vol crush after the CPI data was dramatic and emblematic of the vanna-fuel that helped propel the rally. The VIX dropped from 19 into the print, to 16 this AM. Below we’ve mapped out the change in 2/14 exp skew from Tuesday’s pre-CPI close to this AM, and you can see skew (on a delta basis) declined +3 vol points across the curve…thats pretty big.

With that, most of the vanna fuel has likely drained off. Lets not forget that 1-month SPX realized vol is +16%, and so for implied vol to continue to decline from here we’ll likely need to see more stable markets (i.e. less realized vol).

Zooming out, we’re not so sure how stable this entire rally is. The big gains were, in our view, a combination of a positive trigger into negative gamma and vol crush. That fuel is now largely gone as Friday’s OPEX will likely remove any positive gamma that has built up, as we then turn to the events of inauguration & the FOMC.

6,000-6,050 is likely to remain a resistance area after OPEX and into FOMC, as so we may look to add some near-term short calls into further strength – particularly ahead of the 3 day weekend.