Macro Theme:

Short Term SPX Resistance: 4,860 (SPY 485)

Short Term SPX Support: 4,815 (SPY 480)

SPX Risk Pivot Level: 4,800

Major SPX Range High/Resistance: 4,860 (SPX Call Wall)

Major SPX Range Low/Support: 4,700

‣ A downside break of 4,800 is our interim “risk off” level.*

‣ Traders, and SG models, are pricing in low volatility/risk into 1/31 FOMC*

*updated 1/22

Founder’s Note:

ES Futures are up 35bps to 4,887. Key SG levels for the SPX are:

• Support: 4,824, 4,815, 4,800
• Resistance: 4,850, 4,860
• 1 Day Implied Range: 0.58%

For QQQ:

• Support: 420, 410
• Resistance: 424

IWM:

• Support: 190, 185
• Resistance: 196, 200

TLDR: We are now seeing indications that equity volatility should start to again contract, as our 1-day implied move is a scant 58bps, and our vanna model shows that IV has been fully extracted (i.e. a decline in IV is not fuel for upside). Today’s key upside level is 4,860, with 4,815 support.

Equities launched higher on OPEX Friday, with the S&P500 closing +1.2% to all-time highs of 4,839. The NDX closed 2% higher to record highs of 17.314. Today would likely be the last possible day for any OPEX related risk, however we’ve seen nothing but inflows into this OPEX (highlighted below).

If we look back and the last few weeks of SPX performance, there were moments of weakness/volatility that failed to manifest into anything more material. As OPEX closed out Friday, equities broke to new highs (volatility expressing as upside).

Currently it’s a unique mix of level adjustments in our models today, as positions shift and roll from Friday’s expiration. The SPX

Call Wall

resistance shifted down to 4,860 (from 5,000) and the SPY

Call Wall

holds at 480. On the QQQ side, there was a large jump from 415 up to 424. As we noted on Friday, the rolling higher of

Call Walls

is key to validating higher prices. The IWM Call Wall shrinks to 200, from 210.

Before we move to what’s ahead, lets take a brief look at what led to Friday’s outperformance.

Shown below is the

HIRO

S&P500 from Friday, wherein you can see strong bullish flows starting near 12 EST. What’s interesting here is that while there was some 0DTE (teal) call buying, the bulk of the flows were longer dated (purple), and that persisted until around 2pm ET (red box). When those flows shut off (i.e.

HIRO

lines flattened out), the SPX upside stalled.

These inflows were not limited to S&P500. There was also a large buying impulse in tech and Mag 7 (shown here). These were sizable flows, and the fact that they both correspond with OPEX and are longer dated flows suggest a rolling of OPEX positions. Friday also caught a huge boost in the chip sector, with SMCI up +35% on the day. This drove massive call buying in the likes of AMD, AVGO & INTC.

This call flow all combined, to generat one of the most surefire signals of long call impact & associated dealer buying requirements: stocks up, volatility up. In this case we can see that right at this 12PM EST window (black box), the SPX breaks higher, which corresponds with a move higher in the VIX (orange).

However, once that flow subsided, you can see that the VIX collapsed to fresh lows on the day, and a SPX for the last 1.5hrs of the session.

Shifting back to the present, we now see a few key shifts in our models.

First, SPY 485 is setting up to be the key upside resistance strike for today, which lines up in the SPX 4,860

Call Wall

area. We flag SPY here as these gamma positions are currently larger that relative SPX positions, and we’d also highlight that positions around current trading levels are nearly 100% call positions (orange bars). We’ll discuss the relevance of this below.

Lastly, note that SPY480 remains a very large downside strike, which should function as near term support.

Second, as discussed on Friday, is the large 5,000 strike. As we discussed on Friday, the bulk of these 5k strike positions are likely risk-neutral box spread trades, however we have seen a pickup in single leg calls. With this increase of attention at 5,000, it has setup as the major upside target – which is only 3.3% away. Before ripping directly to that strike (which is not a give-in), we’d first we’d anticipate calls now filling in around the SPY490/SPX4,900 area, creating some

Call Wall

resistance between current trading levels and 5k. Should these Walls build and roll up, we look for further Index upside.

Related to

Call Wall

resistance is the second dynamic to flag is that of IV. Shown below is our vanna model, which is now signaling upside resistance building with further S&P500 rallies. This resistance should be thought of as “sticky upside” vs “rejection”, and is generated by the S&P500’s shift into “purely” call territory (as mentioned above). With the decline in IV’s our vanna model now shows that any further rally in the SPX is likely to be met with a need for dealers to increase short hedges. This is why the purple “IV adjusted” delta line in the model below is higher than the base delta (gray) in the plot below (red box).

Thinking of this another way, there are times that a collapse in high IV drives stocks higher, like off of a large market crash when the VIX drops from say 25 to 15. In this case as IV’s are hitting lows, that that force dries up which should equate to tighter trading ranges.

Digging into vols, we can see that traders are generally seeing a risk-free period up until 1/31 FOMC. You can see this through the term structure, wherein we are in an average position (i.e. current values in the middle of the purple cone), and then there is a notable shift higher for IV’s out past FOMC (red box). The sum of this is that for the next week traders are pricing in low risk/volatility, and our models now sync up with that. While we think its therefore unlikely that we see further +1% upside days pre-FOMC, 4,800-4,815 should also serve as strong short term support.

While we do not cover macro, we’ve seen significant underperformance in IWM/small caps, which seems to be syncing with bonds and diverging from SPY/QQQ. These are likely tied to shifting views on rate cuts, which should keep volatility relatively bid to post-FOMC expirations (shown above).