Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are -70bps to start December, which implies the SPX is set to open <6,800. Powell is speaking at 8AM, then ISM PMI at 10AM ET.

BTC, an asset we view as a proxy for risk sentiment, is notably lower -5% to 85k.

The weakness comes as the bullish tailwinds from volatility/time decay was a big support last week, which helped the SPX rally 5%. Traders now get back to their seats with big upcoming data this week, and FOMC next week. Note the intersection of time and price here, wherein the SPX started its rally right on Nov OPEX, and has, at least temporarily, concluded the rally after the Black Friday 1/2 session.

Consolidation and chop is the likely path for this week and into FOMC, with our Risk Pivot now at 6,775. A break of 6,775 based on current positions implies a test of 6,700 (we’ll be watching for 0DTE to fill in on a test of 6,775). Resistance for today is at 6,810, ~6,825 (SPY 680) then nothing until 6,875 – although we do not think a big move up is in the cards for today – and quite likely not until Friday.

TRACE shows us a big Captain Condor trade at 6,810 & 6,875 (he’s already underwater), and we see negative gamma from 6,800 down to ~6,725. Given this dynamic, should HIRO trend lower we would again watch for major support only into that 6,725-6,700 area.

The reason we were cautious about this week was because volatility was likely to stop declining into a deluge of big prints – the last prints that can impact the Dec FOMC. You see the daily roll of data marked on our SPX term structure chart, with the most important data reflecting for Friday 12/15, wherein we see both NFP and PCE. This has our Forward Implied Volatility reading above the SPX term structure, which is evidence that traders are pricing in elevated volatility for a given event.

Turning briefly to BTC, with its weakness being attributed to a podcast from MSTR CFO saying they could sell BTC if their MNAV went negative. What’s interesting about this that there is persistent long put positions in MSTR <170, implying that many traders are short the stock <170. They are massive positions, but all strikes <170 are long puts (dealers short).

We’re not predicting that MSTR goes bankrupt, but we can’t help but think this scenario is like the start every famous trading movie: “traders discover someone is over-levered and then attack the position to force him out”. Or, to quote Bobby Axelrod: “When I see a head sticking out, I swing.” The reason we watch this is because if BTC does drop, MSTR and COIN and a bunch of other crypto stocks can go with it which could be a drag on major indicies.

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