Macro Theme:

Short Term SPX Resistance: 4,775

Short Term SPX Support: 4,700

SPX Risk Pivot Level: 4,700

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 down 46bps to 4,779. Key SG levels for the SPX are:

• Support: 4,750, 4,725, 4,700
• Resistance: 4,773, 4,800

  Call Wall

• 1 Day Implied Range: 0.74%

For QQQ:

• Support: 404, 400
• Resistance: 405, 409

  Call Wall

IWM:

• Support: 194, 190
• Resistance: 200

It was a Monday morning kick-save for equities, as the S&P500 bounced violently from the critical 4,700 level, up to 4,763. That move shifted the S&P up into major gamma at the 475 SPY strike (4,773 SPX), with another

large gamma strike

just above at 4,800 SPX. This area of 4,775-4,800 is an area range of major long term resistance, and we think unlikely to be breached without a major catalyst. Thursday’s CPI would be the first possible event. 4,700 remains the critical support zone, and yesterday’s sharp, 0DTE-driven rally suggests that retesting 4,700 is viable.

There was a very sharp bullish tone to markets yesterday, triggering one of the strongest rallies we’ve seen in weeks (+1.3% SPX open/close). This rally was spurred on by some truly massive call buying, which likely increased the upside volatility. Shown below is our

HIRO

chart from yesterday for the S&P500. We believe this figure of +$12bn (purple line) is the largest positive

HIRO

signal for the S&P that we’ve ever seen. However, adding an asterisks to this giant call buying was 0DTE (teal line), which was an incredible 71% of the total S&P flow, and also, we believe, a single day intraday 0DTE record.

There were also a very large positive

HIRO

readings in chip names, particularly NVDA, shown below (stock up 6.4%). This was our highest reading in at least the last 30 days, with 46% of total NVDA flow tied to Friday’s expiration (teal).

When we see huge 0DTE positions come in, it places the stability of a market moves under question. Obviously, the use of 0DTE calls is for hedging and/or getting long over a single sessions, and not an expression of longer term bullishness. If this flow was predominantly longer dated calls (vs 70% 0DTE for the S&P), then it would indicate the presence of bullish hedging flows that could persist over longer periods of time. Its completely viable that the huge bullish impulse that was here yesterday doesn’t extend into today.

On this idea of longer term bullishness, we see that yesterday’s volatile move higher did create a “stock up, vol up” response. This is all framed quite well via our Fixed Strike Volatility Matrix, which reflects a sea of light green. This light green informs us that IV for nearly all strikes across all expirations was higher (i.e. the volatility surface elevated), which is not terribly surprising given yesterdays jump higher in SPX prices. However, we’d flag the much more neutral green color for strikes >4,740 (current indicative SPX open) and for expirations out past 1-2 weeks.

The suggestion here is that yesterday was a short dated chase, and necessarily longer term players stepping up in major way. This syncs with with the majority of yesterday’s flow being 0DTE.

The takeaway from all this is that while we were clearly off in our belief that yesterday would mark the start of a risk-off period, we think its a mistake to project yesterday’s rally as a clear “risk-on” signal. Current SPX prices are rotating inside of a zone of

large gamma strikes

near 4,700-4,800, which we see as a “neutral zone” – and this is a zone that extends back into mid-December.

For a more bullish, longer term signal we will want to see the major indexes stage into their respective

call walls

, with a call positions forming at higher strikes.

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