Macro Theme:

Short Term SPX Resistance: 4,865 (SPY 485)

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

SPX Risk Pivot Level: 4,800

Major SPX Range High/Resistance: 4,900 (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 flat 35bps at 4,882. Key SG levels for the SPX are:

• Support: 4,826, 4,815, 4,800
• Resistance: 4,850, 4,865, 4,875, 4,900
• 1 Day Implied Range: 0.68%

For QQQ:

• Support: 420, 413
• Resistance: 424

IWM:

• Support: 194, 190, 187
• 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.

There was little follow through in equities, yesterday, as major indicies were up fractionally. This gave an opportunity for traders to layer in short dated positions around ATM strikes, which can be seen in the updated gamma-strike plot for SPX, below. As you can see we now have two very clear, sizable overhead strikes at 4,850 & 4900 (

Call Wall

), which should be factored in along with SPY 485 to create a sticky zone for S&P near current prices (4,850).

This is playing into what should remain a quiet period ahead of 1/31 FOMC. As you can see below there is very little expiring until 2/16 OPEX – an expiration which should gain in importance post-FOMC.

The other factor adding to “stickiness” is implied volatility, which, as we discussed yesterday, is rather lifeless. This removes fuel for a rally, but also provides relatively less edge for premium sellers. Shown here is our “VIX Fair Value Gauge” (also known as SPX Variance Premium), which shows us that the current VIX reading vs 1-month SPX realized volatility is just below long term averages. What makes this particularly interesting is that the FOMC is next week, which the VIX is pricing in.

Focus may be more dedicated to single stock stories, with NFLX reporting earnings tonight, and TSLA, tomorrow. As a reminder you can see this earnings data, along with implied earnings moves, on the dashboard.