Macro Theme:

 

Short Term SPX Resistance: 5,000

Short Term SPX Support: 4,900

SPX Risk Pivot Level: 4,900

Major SPX Range High/Resistance: 5,000

Major SPX Range Low/Support: 4,800

‣ 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 4,900, which is our first major support.*

*updated 2/5

 

Founder’s Note:

ES Futures are flat to 4,960. NQ futures are flat at 17,725.

Key SG levels for the SPX are:

• Support: 4,930, 4,900
• Resistance: 4,969, 4,973, 5,000
• 1 Day Implied Range: 0.69%

For QQQ:

• Support: 423, 420
• Resistance: 430, 440

  Call Wall

IWM:

• Support: 190
• Resistance: 195, 200

  Call Wall

The SPX is locked into this current range of 4.900 – 5,000, and we give edge to that holding into next weeks VIX OPEX – Equity OPEX (2/14-2/16). As we covered on Monday’s Member Q&A, there is a consistent cadence to large options positions building and rolling up, with new ranges being initiated around OPEX & FOMC.

This equates to the SPY 490 (SPX 4,915) – 4,900 serving as large, critical support, and 5,000 as major overhead resistance over the next week.

There is not much on the calendar which is causing traders anxiety. You can see this via the SPX term structure, which is both flat and fairly low, hovering around 10% IV’s. This level of vol backs out to ~65bps of daily SPX movement, which is in line with our SG implied move at 66bps. Further, as we wrote yesterday, we would anticipate realized vol coming down into next weeks expiration, which should be a drag on VIX/IV’s. Lower vol plays into tighter trading ranges, which further allows gamma to build up around at-the-money strikes.

Aside from what looks like a quiet S&P, there is still an aggressive bid in tech & semis. Shown here is SMH (semi ETF) term structure, which is very elevated due to upcoming 2/21 NVDA earnings. Further, NVDA’s heavy call skew is seeping into SMH, suggesting that traders have a heavy bullish tilt into a sector that is up ~13% for ’24. NVDA itself is up +40% this year making it the 3rd largest component of the S&P500 (behind MSFT & AAPL). Not far behind that are fellow semi-stocks AVGO as the 9th largest component, and AMD at 22nd.

These steep call skews require energy to maintain, and the higher the skew the more energy (i.e. upside bullish action) is required. With so much of the major indicies a function of Mag4 + semi performance, traders should keep an eye on NVDA’s 2/21 earnings as a larger market trigger. In this case, even “good” earnings may not be enough to justify the heavy call IV’s, and we think the passive of earnings could reduce calls skews & IV’s across tech, which is obviously the majority of not only QQQ but also SPX. Because these skews are call-heavy, their reduction could lead to equity consolidation.

These earnings fall right after the removal of VIX exp/OPEX gamma, which should lead to setting a new range <4,900 or >5,000 in the SPX.