Macro Theme:

Short Term SPX Resistance: 5,050

Short Term SPX Support: 5,000

SPX Risk Pivot Level: 4,900

Major SPX Range High/Resistance: 5,100

Major SPX Range Low/Support: 4,800

‣ Volatility should continue to contract into 2/14 VIX expiration – 2/16 equity expiration. Major downside “risk-off” occurs on a break of 4,900, which is our first major support. 5,000 – 5,015 (SPY 500) is major resistance.*

‣ Heavy call skews are a short term risk to equities after 2/16 OPEX & 2/21 NVDA earnings, as the unwind of call IV’s may invoke dealer selling.*

*updated 2/16

Founder’s Note:

ES futures are -40bps to 5,000. NQ futures are -60bps to 17,635.

Key SG levels for the SPX are:

• Support: 4,970, 4.950
• Resistance: 5,000, 5,015, 5,050
• 1 Day Implied Range: 0.67%

For QQQ:

• Support: 430, 425
• Resistance: 431, 440

  Call Wall

IWM:

• Support: 200, 199
• Resistance: 210

  Call Wall

Both HD and WMT report this morning, pre-open. Traders will be more focused on tomorrow’s 2pm ET FOMC minutes, as well as tomorrow’s NVDA ER’s.

We head into this week looking for some consolidation across equiies. As we have been tracking for some time, VIX expiration (last Wed) & OPEX (Friday) were set to change the positioning dynamics across the price & volatility space. Meaning, large options positions (and their related hedges) were built up both around the 5,000SPX to 500SPY (SPX 5,015) zone, and traders appear to be shorting volatility whenever given a chance.

Further, we’ve been highlighting NVDA’s earnings tomorrow night as a last trigger to stall out bull markets because of the fact that NVDA could likely extract the rich call skews which have become a features of this market.

Along with expiration, there were two big events from last week that put a feather in the bear’s cap.

First, we have updated data from the OCC, which provides weekly data on the size of call and put buying. Here we can see that last weeks equity call buying premium surged, rivaling levels last seen in ’21. To us, this signals a local peak in equity speculation, as call buyers are coming in to pump stocks which are already up significantly on the year.

The second interesting move was in semi-leader SMCI, which has been the poster child of this latest equity market rally. The stock was up an astonishing 200% over the last month, before declining 20% on Friday.

Friday’s move brought out the SMCI negative delta options flow in spades. Below is the

HIRO

options flow from 2/14 to 2/16, which shows how the stock moved up from ~$800 to >$1,000 on Friday AM (the line, red arrow). Into that Friday AM high, traders had bought nearly $600mm worth of calls (orange line, green box), and then shortly after the Friday AM open, calls immediately came for sale as can been seen in the sharp drop in that orange, call flow line. The end result was a -$700mm reading for calls, which is an incredible $1.3bn worth of

call deltas

sold. Added onto that was another $600mm in negative deltas from put buying (blue).

Its like everyone rushed for the exits at once!

Even though SMCI took it on the chin, NVDA closed flat on the day at $726 with SMH -50bps to $201. Vols, though, for SMH & NVDA were higher from Thursday’s close (gray line, pre-SMCI’s decline) to Friday’s close (green line).

The net result here is that bulls have lost the positional support (via options hedging flow) they had into last week, which zaps momentum. Eye’s will be on NVDA to provide a second wave of pumping, but that pump has to start from a lower baseline of operations and still comes up against rich call skews (see Friday’s note).

For these reasons, we’re still favoring a retest of the 4,900 area, as outline in our map from last week. Critical to determining if any probe lower is simply a correction vs sell-off, is monitoring fixed-strike volatility. Should that mark higher levels of IV into a sell-off, its a strong signal that traders are starting to buy downside protection, which infers dealers may have to sell into lower equity prices.

In regards to upside, the path is now more clear due to Friday’s OPEX. If the SPX can close >5,000 then bulls regain the edge, particularly if that level is maintained into Thursday AM (post NVDA ER).