Macro Theme:

 

 

Short Term Resistance: 4,600 – 4,615 (SPY 460)

Short Term Support: 4,550

Risk Pivot Level: 4,500 – 4,515 (SPY 450)

Major Range High/Resistance: 4,635 (SPY 420 Call Wall)

Major Range Low/Support: 4,500

‣ The bullish case remains intact with SPX >4,500* and a current upside target of the major 4,600 Call Wall**

‣ As realized volatility shifts lower, it suggests implied volatility should grind down, too. This may result in mid-12 VIX.**

‣ Risk shifts higher on a break of 4,500, wherein we would look for a test of 4,400 with a VIX shift towards 20*

*updated 7/24

**updated 7/27

 

 

Founder’s Note:

Futures are off a few handles to 4,607. The S&P

Call Walls

have rolled higher to 4,650 (SPX) and 462 (SPY). We still mark 4,600 as major resistance, but would not now consider the market overbought if the S&P trades above that level. Support below shows at 4,565 & 4,550. We again anticipate a low volatility session.

In QQQ 385 is our

Call Wall

and the top end of our range. Support shows at 383, then 380.

In yesterdays note we discussed that we were looking for higher

Call Walls

to unlock further upside in the S&P. While we commented that it would likely take a few sessions for the Call Wall(s) to roll higher, the fact that they have is a bullish indication for the S&P. The

Call Walls

rolling higher is a function of puts being added into 460/4,600 as well as calls added >460/4,600. These puts, we believe, are predominantly short. All in all, we think its more dull grind until Thursday’s jobs data & AAPL/AMZN earnings (again, as per yesterdays note).

One of the knocks on this years rally was the lack of breadth, and at this point funds are likely fully allocated into their MegaCap Tech/AI positions. In July there was outperformance in IWM, and the DOW/DIA tied a record for consecutive positive sessions (13). Its also interesting to note that both the SPY & QQQ are just 3.5-4% from their all time highs, with the Dow now at its all time high. Focus on the “leaders” seems to be shifting to the “underperformers”.

With these market shifts back to all time highs, we’re seeing a fade in options positions, as shown below. Call demand spiked with AI-fever, but has failed to maintain that size. Conversely, there is not any sign of put demand, either.

These are signs of attrition, which from our seat may indicate a further grind lower in volatility. To this point one of the major themes from these past few months has been “market up, VIX up” as traders chased upside, but that rampant enthusiasm (i.e. call skews) has flatten out. Further we’d note that just because the call chase has cooled off, it doesn’t mean put demand needs to spike.

We’re in the camp that with out an unanticipated influence/event equity markets drift higher – and this now seems to be the environment we’re now staring down. From our perspective this means that realized volatility should continue to drag, which pulls implied’s lower, too. This makes a dull environment for longs, and a frustrating for 0DTE vol sellers and equity shorts.

Given the low level of realized volatility and positive gamma environment, we think it would take several sessions for markets to wear down/bend before they’d break. The “break signal” currently rests on a move <4,500.