Macro Theme:

Short Term SPX Resistance: 5,015

Short Term SPX Support: 4,900

SPX Risk Pivot Level: 4,900

Major SPX Range High/Resistance: 5,100

Major SPX Range Low/Support: 4,800

‣ Volatility contracted into 2/16 equity expiration, and is now set to expand. Accordingly, major downside “risk-off” occurs on a break of 4,900, which is our first major support. 5,100 is major upside 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 2/20

Founder’s Note:

ES futures are -20bps to 4,980. NQ futures are -40bps to 17,530.

Key SG levels for the SPX are:

• Support: 4,955, 4.950
• Resistance: 5,000, 5,015, 5,050
• 1 Day Implied Range: 0.67%

For QQQ:

• Support: 425, 420
• Resistance: 430, 440

  Call Wall

IWM:

• Support: 195
• Resistance: 200, 210

  Call Wall

Traders are watching the 2pm ET FOMC mins, and NVDA earnings after the bell.

Despite major indicies being lower yesterday, the decent was quite controlled. To this point yesterdays SG 1-day implied move was 67bps, and the open to low range on the day was ~65bps as the S&P found strong support at the SPX 495 (SPX 4,955) – SPX 4,955 range. We would anticipate any further drawdowns to be fairly contained until 4,900, as our 1-day implied move is again 67bps. Its below the 4,900 level wherein volatility may pick up significantly (see yesterday’s note).

To the upside we’d anticipate 5,000 – 5,010 (SPY 500) acting as major resistance on the day.

On the topic of volatility, we have been harping on the idea of monitoring fixed strike volatility [FSV] as the real “tell” for a sustained sell-off.

With that, find the VIX up to 15.8 this morning, and FSV also showing higher readings. These higher readings are denoted by the shades of green across the grid shown below, which indicates that SPX IV’s are about 1/2 -1 vol point higher for nearly all strikes, across all expiraitons vs Friday’s close. This makes some sense on the basis that we have the FOMC minutes and NVDA ER’s today.

On net this is clearly not a panic, but its a rumble…

We monitor FSV because the VIX has threatened to make a sustained move several times over the last ~month, as shown below. However, each time it appears the short-vol cover is about to be forced, and in turn forces the VIX to break out “for real”, vol gets fully stuffed back into its box. Whats critical here is that the last two VIX pops were directly tied to VIX-exp, and that is not a factor here.

This morning we see (previously) high-flyer PANW -20% after ER’s, and NVDA was -6% yesterday. So far we think that tech is currently falling victim to a call-skew unwind rather than outright bets that equities are going to go lower (i.e. put buying). You can get this impression through 1-month skew on SMH, which shows mildly higher IV’s into last night (green) vs Friday’s close (yellow). The reduction in call skew invites selling as dealers sell stock into weakness, but that selling tails off as call values move toward zero. However, if puts are bought into weaker markets, dealer selling would potentially increase as put values increase.