Macro Theme:

Short Term SPX Resistance: 4,568

Short Term SPX Support: 4,550

SPX Risk Pivot Level: 4,500

Major SPX Range High/Resistance: 4,600

Major SPX Range Low/Support: 4,200

‣ IV levels are anemic (~8%), which suggests that a pop higher in IV/equity downside is due. A break of 4,500 is our “risk off” level.*

‣ 4,600 is our current max upside target, as call positions are not yet building above that level.*

‣ We recommend expressing longs in RUT/IWM or Mag 7 vs SPX/SPY into year end, due to upside options positioning.*

*updated 11/22

Founder’s Note:

ES Futures are flat at 4,555. Key SG levels for the SPX are:

• Support: 4,550, 4,514 & 4,500
• Resistance: 4,573 & 4,600
• 1 Day Implied Range: 0.76%

There is nothing happening in the major indexes, and the lack of change in our data reflects that. Gamma levels are sticky, and that is leading to low realized volatility, which is being reflected in the risk-less IV pricing (see yesterday & Friday’s notes). We continue to think that “lower” is the path of least resistance, with our target at 4,500.

We’re stuck in the box outlined below, waiting for a catalyst to shake things loose. Today’s data is anticipated to have a low impact, with some housing prints, a few Fed speakers, and a 7 year Treasury Auction (see the events calendar set to (“low + medium + high” impact”). Tomorrow’s GDP, Thursday’s jobs data, and Friday’s Powell speech may be catalysts for a bit more movement.

Things are also anemic with equity activity, as volume is at major lows. Yes, volumes are generally low around this period, but regardless we think it leaves options hedging flows to dominate. Those flows appear to be dedicated toward positive gamma hedging, which restricts volatility.

With little volume, and stalled volatility, the VIX has responded with a drop into the 12’s. Given this move, the related data from ZH/TME is rather interesting:

Ultimately our guardrails are set: 4,600 max upside, 4,500 major support. The low IV, we think, adds fuel to an upcoming catalyst in that because IV’s are so low, even a minor catalyst could lead to short volatility covering. This, we think, is the main driver of an equity probe lower. For more on this you can see the start of yesterday’s Member Q&A.