Macro Theme:

 

Short Term SPX Resistance: 5,200 (SPX Call Wall)

Short Term SPX Support: 5,150

SPX Risk Pivot Level: 5,100

Major SPX Range High/Resistance: 5,200 (SPX Call Wall)

Major SPX Range Low/Support: 4,800

• For the week of 5/5 we see few catalysts, which should lead to contracting volatility, and upside equity drift.
• 5,200 – 5,215 is major resistance into OPEX week.
• 5,165 (SPY 515) likely remains a key pivot level (support/resistance area) through 5/10
• On a larger time frame, 5,100 is short term support. A break <5,100 pushes the S&P into a more fluid zone, wherein 5,000 is major, long term support.

• 5/22 NVDA earnings, which follows 5/17 OPEX, should be a major turning point for equities.

*updated 5/7

 

Founder’s Note:

ES futures are -20 bps to 5,203. NQ futures are -23bps to 18,145.

Key SG levels for the SPX are:

• Support: 5,150, 5,100
• Resistance: 5,165, 5,175 5,200, 5,208
• 1 Day Implied Range: 0.57%

For QQQ:

• Support: 440, 437, 435
• Resistance: 445

IWM:

• Support: 202, 200
• Resistance: 210

Jobless claims are out at 8:30AM EST. 4 & 8 week TBill auction at 11:30AM EST. 30Y auction at 1PM ET.

Equities remained trapped again, yesterday, as they opened off the big

pivot

level of SPY 515 (SPX 5,168) and drifted higher. We anticipate this 5,150-5,200 range-churn to last into tomorrow, before bigger data points + OPEX start to loosen things up.

 

Accordingly, for today, we see support at 5,150, which any test of that level ultimately succumbing to mean reversion that moves S&P prices back into the SPY 515 area. 5,200 remains large overhead resistance, followed closely by SPY 520 (SPX ~5,210). This 5,200-5,210

Call Wall

area is our anticipated high into next week.

 

This range is syncing up to being very much a “neutral zone” on price, volatility, and time. In terms of price, the

Call Walls

have stalled across S&P/QQQ/IWM, suggesting the appetite for calls at higher prices has stalled. As far as time goes, we are nearing OPEX week wherein a larger set of positions shift, allowing for a change in hedging dynamics & underlying equity movement (+ more anticipated data next week).

 

Lastly, in terms of vol, there is very little premium left, which turns vanna off as a driver. Shown below is the vanna model, and for the bulk of April our purple, IV-adjusted delta plot had a minimum that was well below that of the gray, base-delta model.

This implied that dealers had a lot of stock to buy as equities went higher. Currently you can see the respective minimums are nearly equal, which informs us that vanna has sharply reduced as fuel for higher stocks. Supportive “drift” is still in play as realized vol declines, but the “fast money” influence is gone.

Obviously a bearish surprise data point or news item could push equities lower, in which case vol could pop, producing vanna flows that drive equities lower. Because gamma is so large near current levels, we see this as a low probability event.

Another interesting indicator is the comparison of the VIX to the 1-month realized SPX volatility (RV), shown below. As you can see, we are at the 10th percentile of lows, suggesting that the spread between the VIX and RV is as tight as it gets, indicating no volatility premium. This situation can resolve in one of two ways: either the VIX spikes higher or the realized volatility gradually decreases.

Our view is that the current lows likely align with a spike in the VIX next week. As we stated yesterday, we do not anticipate a full-scale risk-off scenario, but rather some consolidation in the equity market.