Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are down 1.5%, which is off the -2% lows.

TLDR: Don’t be a hero. A move into the 6,600s are easy from here, and rallies are likely to be quite unstable given the global and lurking credit uncertainty. Neither of those problems are going away in the short term, and that likely keeps a bid in volatility.

The dollar index is up 1.5% since 3/1, and that higher dollar is going to be a short-term headwind for assets, generally. On that topic, we see SLV down 8% this AM, on top of -4% yesterday. GLD -3% this AM.

Oil is now +6%, taking out Iran conflict highs.

The flight to safety here is clear, with IEF/TLT/UUP all bid (calls over puts), while HYG is much more moderate. Put demand for equity indexes remains strong (left side).

We’ve “broken the box” this AM – that’s the 6,800-7,000 trading range that has prevailed since Thanksgiving. This has happened on a few very brief occasions over recent months, but those dips were quickly bought. The market has been trained to buy dips, but no near-term resolution to the Iran problem will keep a bid into vol, which means that a natural calming of this market is unlikely. Second, <6,800 is where negative gamma lives, and that drives volatility, too.

This time certainly feels like it should be different, as the market deals with not only war, but lurking credit problems. It’s credit problems that leads to major volatility/VIX spikes.

Negative gamma still troughs in the 6,600s, and a move to that level still seems calibrated to meet VIX 30. That’s where we think equity re-entry gets interesting, as negative gamma dot he downside exhausts and VRP could be fat enough to get interesting.

With that in mind, 6,600s is where it may make sense to play some long delta ideas, but until then we are more in the “sell the rip” camp vs buying dips. On this point, yesterday’s dip was bought oh-so-strongly, but that flow was dominated by put selling (see PM note). Put selling is short covering, and that makes for unstable rallies.

On the credit front, we’re not macro folks, but these headlines pop up and warrant some side-eye. Here is BIDZ, a basket of BDC companies. Its certainly plunging and now testing April ’25 lows…April 25 was not a good look for the global financial system. Could be nothing, but, again, the key is to monitor risks and so we will monitor broader metrics of credit stress going forward.

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