Macro Theme:

Short Term SPX Resistance: 4,770

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

‣ 4,800 – 4,815 is our current max upside target into 1/19 OPEX. Call Walls in QQQ/IWM are at 409/200.*

‣ 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 1/16

Founder’s Note:

ES Futures are down 50bps to 4,775. Key SG levels for the SPX are:

• Support: 4,720, 4,700
• Resistance: 4,750 4,770, 4,800 SPX

  Call Wall,

  4,815 SPY Call Wall

• 1 Day Implied Range: 0.67%

For QQQ:

• Support: 405, 402, 400
• Resistance: 410

IWM:

• Support: 190, 185
• Resistance: 194, 200

TLDR: Today we stay unchanged from the views outlined yesterday that 4,800 is heavy resistance into Friday, and the twin risk-catalysts of a low IV & large Jan OPEX lurk below 4,700 in the SPX. Today we add another possible risk trigger, with the VIX expiration.

This morning there is a Retail Sales print at 8:30AM ET, then the VIX expiration at 9:30AM EST. Accordingly, equity futures traders should be aware that jumpy movements can often occur into/out 9:30A VIX OPEX.

In regards to the VIX expiration, we’ve chronicled many instances in the past (see Dec note here) in which equity markets have found some buoyancy the day before, and morning of VIX expiration. In this case equity futures are, as with yesterday, lower, but yesterday equities caught an afternoon bid which pushed the SPX towards unchanged on the day. In this case it seemed as if the S&P was shrugging off higher rates, as the 10 year yields made fresh 1-month highs. Earlier this month when rates perked up, the SPX responded with a test of 4,700.

Back to the VIX, this morning we see the VIX at 14.5, which is its highest reading since mid-November. Interestingly, the strike range with the highest VIX OI expiring is 15-20, as highlighted below. We often viewed VIX exp as a “max pain” exercise, wherein the goal of VIX liquidity providers is to have the bulk of this interest expire worthless, which signals settling VIX <=15 (9:30AM is settlement).

In regards to unusual movement, this plot is the VIX from Dec 20th VIX exp, and as you can see that date appeared to mark an interim low in the VIX, and on that day the SPX declined ~1.5% to….4,700.

The point here is that the potential for unusual moves exists today, and traders should act accordingly. The support ranges and market behaviors which have been recently been persistent, namely SPX finding a bid at ~4,745 & QQQ at 407-405, have a bit more reason to give way, today.