Macro Theme:

Short Term SPX Resistance: 5,300

Short Term SPX Support: 5,250

SPX Risk Pivot Level: 5,300

Major SPX Range High/Resistance: 5,400

Major SPX Range Low/Support: 5,000

• Into the end of May, we look for implied volatility/VIX to continue sliding lower, which supports equities.*
• Large resistance now back at 5,300-5,320 (SPY 530).**
• Due to bearish data on 5/23, traders are likely to focus on rate narratives into early June, due to inflation data & FOMC.**
• 5,200 is a large support zone, <5,200 we see a test of 5,000**

*updated 5/23

** updated 5/24

Founder’s Note:

ES futures are +27bps at 5,300. NQ futures are +28bps to 18,745.

Key SG levels for the SPX are:

• Support: 5,250, 5,236, 5,200
• Resistance: 5,265, 5,290, 5,300
• 1 Day Implied Range: 0.56%

For QQQ:

• Support: 450, 440
• Resistance: 455, 460

IWM:

• Support: 200, 190
• Resistance: 205, 210

US Durable Goods 8:30 AM ET, Fed Waller 9:35 AM, Mich Inflation Data 10AM.

Memorial Day Monday (US markets closed).

TLDR: We look for prices to continue being fluid today as we are in the risk-off zone <5,300. If today’s AM data points are benign, we think price will drift up towards the largest gamma strike of 5,300 into the three-day weekend. We see decent support now at 5,250, with a much larger support level at 5,200. We think traders are unlikely to furl out risk-off positions in front of the holiday weekend, which further gives edge to a retest of 5,300. <5,250 likely triggers a final move to 5,200.

Our best-laid projections for stable equities and declining IV’s were dashed by positive economic data, which sent rates meaningfully higher. You can see this below wherein we plotted the surging yields (via US10Y, orange) vs the SPX opening at fresh ATH’s and declining steadily throughout the session. Once our “risk-off” level 5,300 gave way, the move was immediately lower to 5,260.

These moves undoubtedly led to mechanical selling in the rate-sensitive sectors/assets like GLD (-2%) & IWM (-1.6%).

Here you can see where

gamma flip

ped from positive >5,300 (5,294), to negative <5,300. The onset of negative gamma & higher volatility in the SPX almost always occurs with an initial move lower. We would anticipate that short dated options sellers now step up in & around 5,250-5,300, which adds some local positive gamma & stability. In the short term, this may mitigate a follow-through in selling.

What was interesting about yesterdays selling is that the options market seemed rather sanguine.

HIRO

flows, while generally negative, were not anywhere near 1-month lows, and implied vols were fairly quiet.

Here is SPX fixed strike vol, wherein we compare the change from Wednesday night (pre-NVDA & SPX >5,300) to this AM, and as you can see the vol’s are all lower. Yes, the VIX went higher, but that is a function of how the VIX is calculated, and not an actual increase in vols. What this signals to us is that there was indeed a knee-jerk reaction to slamming equities on higher rates, it didn’t provoke put buyers to step up. This may limit or throttle the negative dealer hedging flows associated with this move, and throttle a follow-through in the selling.

We can slice vol another way, by looking at 1-month SPX skew. As you can see its unchanged-to-lower from Wed (gray) to today (teal). What strikes us as more interesting here is the lack of bid for calls, which are at 90 day lows. Just because traders don’t want to buy puts does not mean they in turn want to buy calls.

If rates indeed continue to jump higher one would have to assume that is a headwind for equities. While we cannot opine on that aspect of the market, we can opine that options traders are not yet pricing in these risks. At the end of May in PCE, following by ISM data in the first week of June, the FOMC on 6/12. Focus may well turn to that late May/early June period for key updates on rates, which means that the next ~1-2 weeks are maybe more “risk free”, which could lead to more churn in and around 5,300, which is the largest gamma zone on the board.