Macro Theme:

Short Term SPX Resistance: 4,800

Short Term SPX Support: 4,720

SPX Risk Pivot Level: 4,700

Major SPX Range High/Resistance: 4,815 (SPY Call Wall)

Major SPX Range Low/Support: 4,600

‣ 4,815 is our current max upside target, due to a Call Wall shift on 12/19. Call Walls in QQQ/IWM are at 415/210.*

‣ 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 1/11

Founder’s Note:

ES Futures are down to 4,800. Key SG levels for the SPX are:

• Support: 4,750, 4,720, 4,700
• Resistance: 4,765, 4,774, 4,800

  Call Wall,

  4,815 SPY Call Wall

• 1 Day Implied Range: 0.68%

For QQQ:

• Support: 405, 400
• Resistance: 410

IWM:

• Support: 195, 190
• Resistance: 200

Traders are watching this mornings PPI print at 8:30AM ET, as well as AM earnings from: JPM, DAL, UNH, BAC, WFC, BLK, and C

Bears had every opportunity yesterday at the SPX 4,745 Vol Trigger, but were unable to take the baton. With the afternoon bounce higher back to SPX unchanged on the day, the VIX collapsed (bottom pane), closing at its lowest level in ~2 weeks (12.46).

What’s additionally interesting about the 4,770 – 4,800 zone, is that the SPX has been unable to break above this zone for nearly a month. You can see this in the chart below, wherein the SPX as broken sharply lower from this upper zone several times, only to return, often violently, back to it. We think this area remains resistance for today. Further, due to the 3 day weekend, bears may have an uphill battle as traders are likely to not want to care long options positions over the weekend.

Back to the 4,770-4,800 zone – either buyers fade sharply in this area, or sellers increase. We say this because, despite lots of momentum up into this zone, the SPX has not taken out 4,800.

From an options perspective, 475 SPY (=4,770 SPX) & 4,800 SPX have been

large gamma strikes

throughout the time frame shown above, and we believe the majority of the calls & puts shown below were sold short by customers. This may generate large positive gamma in the strike zone of 4,770 – 4,800 , which would support this mean-reverting action we’ve seen over the last month. A large dealer positive gamma position could indicate that dealers are buying SPX dips.

20-25% of this position will expire at Jan OPEX, and so one scenario we must consider (while its not our preferred) is the SPX being able to break/unpin to new highs post 1/19 OPEX.

As far as the downside risks – we’ve been laying those out for weeks (see here, here, and yesterday’s Q&A here). Further, we believe the possibility for Jan OPEX to induce downside selling remains into next Friday, and a move <4,700 continues to be our risk-off flag. On the single stock side, the risks are more idiosyncratic as they may be tied to the size of positions expiring on 1/19. As a way to dig into this, we’ve provided an OPEX spreadsheet you can download, here. The stocks with the highest “OPEX Impact” are the names with the largest relative position(s) expiring on 1/19. In theory these names may have larger long single stock hedges that may be unwound into next Friday.