Macro Theme:

Short Term SPX Resistance: 4,600

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.*

*updated 11/30

Founder’s Note:

ES Futures are down 40bps at 4,583. Key SG levels for the SPX are:

• Support: 4,573, 4,550, 4,540, 4,513, & 4,500
• Resistance: 4,600, 4,613
• 1 Day Implied Range: 0.68%

In QQQ support is at 385, with resistance at 389, 390 & 395.

There are no major data points today, and earnings are very light. Next week is going to be a very large week for equities, with CPI on the 12th, followed by FOMC on 12/13, & a very large Dec OPEX.

The SPX broke 85bps higher Friday, but rejected at the 4,600

Call Wall.

Despite that upside test, the Call Wall(s) stand at 460SPY/4,600SPX. The Call Wall is the top of our trading range, and we view a move above that level as overbought. Further, we see very little chance of the SPX Call Wall rolling higher, but some potential for the SPY wall to roll to 465 if the S&P maintains the 4,600 level, today.

It does appear equity strength was carried by DIA/IWM, as both surged higher last week, significantly outperforming the SPY/QQQ. We’d note that the IWM

Call Wall

remains at 185, which was its closing level on Friday.

This theme of

Call Walls

not rolling higher, despite being tested, suggests stalled short-term upside in equities.

We’ve had a bearish stance over the past week (with SPX at ~4,550), but Powell’s comments on Friday cleared the way for rate-sensitive rally into the

Call Walls

. With those Walls remaining unchanged, we think there is little upside left until/unless those Walls roll higher. The other factor at play here is large positive gamma, which should keep realized volatility muted. As a general rule, positive gamma will be heavy into

Call Walls

, as dealer hedging flows buy dips, and sell rips (leading to mean reversion).

As you can see in the chart below, SPX gamma is materially positive at 4,600, and grows into 4,700. As indicated above, more positive gamma should continue to keep tight trading ranges via mean reverting price action.

Gamma is highest for at-the-money options, and increases as we get closer to expiration. As cited at the start of our note, the massive DEC OPEX is next Friday. This tells us that the “charm effect” will start to increase into the end of this week, which typically has us looking for pinning – but has been a feature of the S&P over the last week. Given this increasing charm effect, there just seems little to be even less to offer either bulls or bears (aka odds are SPX remains dull) with the SPX locked into this 4,550 – 4,600 range.

Additionally, in regards to our bearish view, with this charm we think its harder for markets to express sharp downside over the next week, as gamma remains fairly large all the way down to the big, supportive gamma at 4,500.

Adding to lack of direction for this week are those big CPI & FOMC prints coming up next week. Below is SPX term structure, with those key dates highlighted in green. You may also note that the term structure is lifted off of the bottom of the purple cone, which tells us that IV is moving up off of last weeks lows.

IV for next week is unlikely to now drift lower due to the event vol of this upcoming data, but traders will likely look to selectively sell any vol pop that occurs this week, and do so by selling <=5DTE options. This factor likely keeps supportive flows into the SPX, particularly if there is a move back toward 4,500.

The summary here is mapped out in the chart below. Into the end of this week, we see heavy resistance at 4,600, but still think a move down toward 4,500 is reasonable. We would not have a strong “risk off” stance until/unless the SPX moves <4,500. Through CPI/FOMC/OPEX options positions & volatility should be reset, which likely sets up some interesting trading opportunities into year end.