Macro Theme:

Short Term SPX Resistance: 5,290

Short Term SPX Support: 5,250

SPX Risk Pivot Level: 5,320

Major SPX Range High/Resistance: 5,400

Major SPX Range Low/Support: 5,000

• Starting on 5/31 Core PCE traders are likely to focus on rate narratives into early June, due to ISM inflation data, NonFarms & FOMC on 6/12.
• 5,300 – 5,320 is major resistance into the close of Friday, 5/31
• A break of 5,250 likely leads to a test of 5,200
• <5,200 the market fully loses positive gamma support, allowing for higher implied volatility (i.e. VIX) and a move down into 5,000

Founder’s Note:

ES futures are -40bps to 5,262. NQ futures are -32bps to 18,472.

Key SG levels for the SPX are:

• Support: 5,250, 5,200
• Resistance: 5,265, 5,275, 5,290, 5,300, 5,311
• 1 Day Implied Range: 0.56%

For QQQ:

• Support: 455, 450, 440
• Resistance: 457, 460, 465

IWM:

• Support: 200
• Resistance: 205, 210

Initial jobless claims, GDP Growth 8:30AM ET. Fed Williams 12:05 PM.

Yesterday, despite the AM futures decline to the SPX 5,260 area, there were large positive gamma strikes that kept the SPX in a very tight 15 handle range. This morning we see ES futures indicating the SPX will open near key 5,250 support, with large, nearby positive gamma strikes having dissipated. What does this mean? More volatility (i.e. larger trading ranges) may be on tap for today.

<5,250 we are expecting a clean move down to SPX 5,210 (SPY 520) – 5,200 (red box) because there is less gamma related support. As we have been highlighting, <5,250 is our “risk off” level, which implies traders may want to own equity puts and/or VIX calls.

Conversely, if SPX pops higher, there is less resistance above 5,265 (SPY 525) to 5,290 (green box). Those big gamma strikes from the last two sessions at 5,275 & 5,285 that kept a lid on things appear to now be neutralized.

Much of this equity pressure in due to rates, which again shifted mildly higher yesterday. This is serving to provoke an interesting move in the SPX volatility space, as highlighted below in our Fixed Strike Matrix. Here you can see statistically low IV via the shades of red for near term, and longer term options. However, there is a sharp bid forming for >=6/12/24 FOMC-related options, shown in green (yellow marked region). This also highlights a distinct focus on the left tail (downside puts) vs right tail (upside calls).

What is critical about this is that if the next few inflation-related data points are hot (starting with tomorrows Core PCE, then ISM + Nonfarms next week), that vol-bid should only intensify as inflation concerns mount into FOMC. If you combine this with a loss of positive gamma from 5,200 down to 5,000 then we could face a nasty market reversal.

To the upside its hard to see the market breaking through large resistance at 5,300-5,320 (SPY 530) before Friday’s close. It appears more possible for next week if ISM & Nonfarms are positive.