Macro Theme:

Short Term SPX Resistance: 4,725

Short Term SPX Support: 4,650

SPX Risk Pivot Level: 4,725

Major SPX Range High/Resistance: 4,800

Major SPX Range Low/Support: 4,600

‣ 4,800 is our current max upside target, due to a Call Wall shift on 12/19. Call Walls in QQQ/IWM are at 404/210.*

‣ A downside break of 4,700 is our interim “risk off” level.*

‣ January OPEX is setting up to be a major event, with a risk that expiring large long call positions could pull markets lower mid to late January.*

‣ Implied volatility remains muted despite recent equity market weakness, with a surge in demand for long volatility (i.e put buying) is a potential driver of equity weakness.*

*updated 1/8

Founder’s Note:

ES Futures are flat 4,730. Key SG levels for the SPX are:

• Support: 4,669, 4,650
• Resistance: 4,700, 4,720, 4,750
• 1 Day Implied Range: 0.75%

For QQQ:

• Support: 395
• Resistance: 397, 400, 404

  Call Wall

IWM:

• Support is at 190
• Resistance at 194, 200

We do not see any major economic data points over the next several days.

Our view has been that the S&P breaking <4,700 could trigger a more severe risk-off scenario. On Friday, the SPX closed just below that key 4,700 level, which trigger’s our risk-off condition.

As we laid out in depth last week, the main potential drivers of downside are:

1. The lack of demand for long volatility/long put positions (read here)
2. The large January 19th single stock expiration (read here)

We believe these two are linked, in that a bid to

volatility triggers

OPEX related selling, and/or OPEX related selling triggers long volatility demand. Accordingly, the major, short term downside levels are 4,650, 4,620 & 4,600.

For those of you looking to maintain or hold core long positions, the benefit of this low IV is that downside hedging remains relatively cheap. Shown below is skew for 2/16 SPX, and you can see the current IV’s (green line) are near the bottom of the range over the last ~60 days (green shaded area). The last 60 days were also a low volatility period, therefore the historical readings that factor into our statistical cone are based on some of the lowest IV’s of the last year.

To the upside we see SPY 470 as the largest S&P500 strike on the board. This is the level that capped the upside response to Friday’s NFP numbers, and it should remain a challenging upside strike for the S&P to overcome. Should the SPX close >4,725 it would likely remove our risk-off condition over the next several sessions.