Macro Theme:

 

 

Short Term SPX Resistance: 4,950

Short Term SPX Support: 4,868

SPX Risk Pivot Level: 4,800

Major SPX Range High/Resistance: 5,000 Call Wall

Major SPX Range Low/Support: 4,815 (SPY 480)

‣ 4,900 – 4,915 is our target high into 1/31 FOMC.*

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

‣ We look for a sharp directional move post-FOMC & into 2/16 expiration, with 5,000 the key upside strike. Major downside “risk-off” occurs on a break of SPY 480, which is our first major support.*

*updated 1/30

 

 

Founder’s Note:

ES Futures are down 50bps to 4,927. NQ futures are down a sharper 115bps to 17,386 due to tech earnings.

Key SG levels for the SPX are:

• Support: 4,900, 4,868, 4,850
• Resistance: 4,920 (SPY 490), 4,950
• 1 Day Implied Range: 0.74%

For QQQ:

• Support: 415, 410
• Resistance: 424, 430

  Call Wall

IWM:

• Support: 196, 190
• Resistance: 200

  Call Wall

Today traders are watching the 8:30AM ET Treasury Refunding Announcement, and the 2PM ET FOMC.

Tuesday PM earnings results: AMD -6%, MSFT -0.75%, GOOGL -5.6%

TLDR: We are poised for volatility today, and seem positioned to shift away from current trading ranges, leading to a new set of ranges into Feb OPEX. Major price targets for the 1-2 days post-FOMC:

• SPX 5,000 & 4,815 (SPY 480)
• QQQ: 430

  Call Wall,

  415

  Put Wall

• IWM: 205, 190

  Put Wall

The upside levels listed above we see as “sticky” initial targets with high positive gamma (meaning volatility should initially subside/pin after hitting these upside strikes), but the downside targets should be seen as fluid due to negative gamma hedging flows.

In regards to the overnight action in tech, the best look we have is the SPX implied vols (NDX/QQQ don’t trade in the AM), and, despite futures being lower, fixed strike vols are generally down as you can see in the red zone below. Yes, today’s & tomorrows expiration IV’s are higher, but that would generally happen on an FOMC day regardless of weak tech earnings. Through this lens we view the overnight NQ/ES futures action as some overbought consolidation.

The SPX is indicating an opening near the major 4,900 gamma strike, with QQQ opening at a 420. Should the QQQ’s slide a bit more, it does appear to be entering a more put-heavy, negative gamma region, as shown below (red box, blue=puts, orange = calls). Said differently, its a slippery downside zone immediately below current QQQ prices.

For the SPX, we see a gap below 4,900 down to SPY 480, but we see that SPY480/SPX4,800 range as solid support. Its below 4,800 where SPX volatility/VIX could expand significantly.

Below is our SPX map out of FOMC. The bullish setup is pretty clear, as if we hold 4,900 the post-FOMC volatility crush/vanna fuel should press equities higher into 5,000. From there we would look for extended upside if/when

Call Walls

roll higher.

That downside is a bit trickier. It would not take much to invoke a test of 4,800, however we would anticipate the systematic dip buyers/vol sellers to take a hefty swing at that level. We need to see a break of that 4,800 level to become a “believer” in a more extended downside move. In this scenario we think trading would remain volatile into Feb 16th OPEX, and you would accordingly want to position for extended downside.

 

 

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