Short Term SPX Resistance: 4,300

Short Term SPX Support: 4,200

SPX Risk Pivot Level: 4,315

Major SPX Range High/Resistance: 4,400

Major SPX Range Low/Support: 4,200

‣ >430 SPY (SPX 4,315) may mark a sharp rally to 4,400 SPX. Rallies into 4,300 SPX should be considered “suspect” and subject to quick reversals. The S&P needs to break that key SPY 430 level to confirm strength.*

‣ <4,200 SPX may mark a sharp increase in volatility*

*updated 10/5

Founder’s Note:

ES Futures are 0.65% lower to 4,320. Key SG levels for the SPX are:

• Support: 4,274, 4,261, 4,250 & 4,300
• Resistance: 4,300, 4,313 & 4,325
• 1 Day Implied Range: 0.81%

Geopolitical tensions have unfortunately ratcheted higher over the weekend, adding to the list of concerns for traders.

As we have been noting, rallies should be considered fragile until/unless 4,315 is overtaken, and that is where the rally failed on Friday. Futures are indicating that the S&P will now open back under the major resistance zone of 4,300 – 4,315 (SPY 430). The weekends events have stalled both the upside price momentum, and the implied volatility decline, and it may now be hard for these positive equity forces to restart ahead of several key data points Wed/Thurs.

This leaves the S&P subject to rather quick probes back into the 4,220 area (SPY 420) lows of last week.

Fast equity declines/reversals would be aided by higher implied volatilities, which are now unlikely to materially release until Wednesdays PPI & FOMC Mins, followed by Thursday’s CPI report. S&P term structure remains in backwardation, with a bump in IV’s associated with these key events, as highlighted in green. This backwardation highlights traders seeing elevated risk, and implies that changes to implied volatility are a major driver of equity prices (i.e. vanna flows). If IV’s shift higher that adds to downside equity pressure, while lower IV’s boost equities higher.

There are also many Fed speakers over the next several days, as shown below (calendar on the top right section of the SpotGamma Dashboard). In this negative gamma environment, prices can jump quickly on random Fed statements.

Zooming out, in prior weeks we had flagged 4,200 as major support, and while that area has held, we now see a deterioration in that downside support. This deterioration is something we flagged last week, and our models show even less support now <=4,200 after our weekend update.

The impact of this may be that while realized volatility has remained fairly muted into recent equity declines, volatility could now jump if the SPX pushes down <=4,200. Framed another way: risks are increasing that the S&P downside could speed up, and that corresponds to VIX >20.