Macro Theme:

Founder’s Note:

ES futures are -50bps to 5,270. NQ futures are -40 bps to 18,562.

Key SG levels for the SPX are:

• Support: 5,250, 5200
• Resistance: 5,260, 5,270, 5,300, 5,312
• 1 Day Implied Range: 0.53%

For QQQ:

• Support: 452, 450, 440
• Resistance: 455, 460

IWM:

• Support: 200
• Resistance: 205, 208, 210

JOLTS 10AM ET

Futures are back testing the underside of the key 5,250 level – a zone which we last week identified as “risk-off”. Our reason for identifying this area as risk-off, is <5,250 marks the transition from positive gamma, to negative gamma. Negative gamma should invoke directional hedging flows, which means that if the SPX sells off <5,250, hedging flows should initially help to push the S&P lower. If equities then turn higher, those same hedging flows should chase stocks higher.

This was clearly the pattern over the last 3 sessions wherein that <5,250 zone was slippery, before dips were violently retraced. On this note, should be break <5,250 today, we’d again look for a test of 5,200. Resistance is at the same 5,260 – 5,270 zone, following by very heavy resistance at 5,300-5,312 (SPY 530).

The second element to discuss here is 0DTE flows. We’ve been on the record several times stating that we thought 0DTE flows brought mean reversion. This means that dips are bought, and rips are sold, which reduces the size of intraday moves. When you combine that with the negative gamma dynamic, you can see much larger swings.

To this 0DTE point, you can see this options flow come in to buy the dip over the last two sessions in the

HIRO

chart below, as highlighted with red arrows. These are very large, material flows of ~$8bn notional on Friday, and ~$4bn yesterday.

We’d also note that these bounces source from just under key support levels: 5,200 Friday and 5,250 yesterday. Lastly, these moves have ended at the major cluster of key levels shown in the chart above: 5,260 (SPY 525) – 5,270 (Vol Trigger).

This cluster is the center of the “neutral zone” range of 5,250-5,300 that we highlighted yesterday.

Accordingly, should the S&P dip today, we’d be eyeing the key support levels of 5,250 and 5,200 for a strong, responsive bounce.

Zooming out, where does this leave us?

The market is watching Wednesday’s ISM & Friday’s NFP closely, worried about a tail print. We believe that the S&P will more or less revolve around the 5,250 area into FOMC.

If those prints are very bullish for equities, we think 5,300-5,311 should hold as resistance overhead until next weeks FOMC (6/12). Implied volatility cannot fully release to drive higher equity prices until FOMC, which mitigates vanna flows as a major driver. If we hold 5,300 into FOMC, and FOMC is bullish/dovish, then we’d look for a move & pin into 5,400 for June OPEX.

Conversely, if those prints are very bearish, we risk breaking <5,200 before FOMC, which may open the door for a sharper slide lower (a.k.a. volatility spikes). This is because there are very few supportive options positions <5,200, until we approach 5,000. Higher IV can also invoke negative vanna flows which push the market downward.

The worst case scenario, we think, is some type of move to 5,000 by end of June. Should this happen in/around the massive June OPEX (6/12) & Quarter OPEX (6/28), we could end up with a very bullish scenario of high implied volatility clearing (due to FOMC) & large puts expiring at OPEX. We’d take that as a great setup for a directional trade higher.