Macro Theme:

Short Term Resistance: 4,325

Short Term Support: 4,250

Risk Pivot Level: 4,325

Major Range High/Resistance: 4,400

Major Range Low/Support: 4,200

‣ We look for a rally >=4,400 the week of 10/2*

‣ 4,200 likely remains a zone for major market lows into 10/20 OPEX.*

*updated 10/2

Founder’s Note:

ES Futures are again flat 4,325. Key SG levels for the SPX are:

• Support: 4,276, 4,266, 4,250, 4,225
• Resistance: 4,300, 4,315
• 1 Day Implied Range: 0.85%

For QQQ: Support is at 360, with next support at the 350

Put Wall.

Resistance is at 365.

TLDR: We continue to flag 4,325 as the critical level for the S&P – it’s only above that strike wherein we think a rally has legs. Below this level, rallies could be subject to swift reversals (like yesterday). Our view has been that Friday’s OPEX could be the trigger to spark that jump >4,325, but both SPX prices, and vols are sticky. It may take the benign passing of upcoming datapoints, and/or a pause in rates to generate lift. We note ISM on 10/4 at 10AM ET, and NFP on 10/6.

On the topic of rates, while we do not generally make notes on macro developments, the surge in yields is something to document as its impact shows in equities. Shown here are UST 10 year yields, which are making fresh highs today (highest since ’07). These rapidly increasing rates are a headwind for equities, as utilities (XLU – 4.5%), REIT’s (XLRE -1.8%), regional banks (KRE -2.5%) all cratered yesterday. We also note many

HIRO

flow alerts yesterday in these rate sensitive sectors: HYG, WFC, OZRK, BAC, SQ, MS, ZION, TLT, C, XLU, GS – all saw heavy put buying.

Several times now the S&P has threatened to pop through 4,300, but rejected hard. On yesterday’s test, and subsequent rallies, you could see very large negative deltas jump out, which squashed the rally (red arrow, below).

The Q’s and mega-tech did fair a bit better, with most of the “Magnificent 7” closing >=1.5% on the day. That was again counteracted by heavy selling into those rate sensitive sectors.

On the IV side, things remain sticky. Shown here (pink) is skew for Nov expiration vs IV of 9/28 (gray). As you can see, we remain elevated, which syncs with term structure (as shown yesterday). Again, we need a trigger to draw on volatility selling, which would add a tailwind for markets. That could come with the passing of data as suggested above, a decline in yields, and/or the passing of 4,325.

Refreshing our look at the downside, we continue to think that downside in equities would be a “grind” and not a “plunge” with 4,200 as the first major support. Layers of two-sided gamma (i.e. puts in blue & calls, orange) is struck at intervals from 4,200 – 4,000. And, yes, puts outweigh calls here, but in our experience its zones of “purely puts” that trigger highest volatility.

As often discussed here, this suggests that if you are short, you may want to focus on being short delta, rather than long vega. For example, we think its unlikely the VIX moves meaningfully through 20 unless there is some type of credit event.