Macro Theme:

Key dates ahead:

Founder’s Note:

ES futures are up 60bps, NQ +200bps, after MU earnings (+17% premarket).

A big PCE print is at 8:30AM EST.

TLDR: We wait for the PCE, then we want to ride the short term trend that sets up out of PCE. Upside targets are 7,500 this week, with 7,600-7,700 for next week. Downside is 7,300, with a door to 7,000 by 6/30.

We have moved our Risk Pivot to 7,380, because market makers now hold a negative gamma position below that level (red box). this is a unique construct, as MMs have held positive gamma into lower strikes. If that level breaches we look for first support at 7,300. However a move that low opens the door for continued downside into month end. In that scenario eyes are on the 7k level in SPX into 6/30.

Should we clear PCE without issue, we assume that the equity market will rally more strongly, and SPX will test the 7,500 level in the short term. Following that, we’d have to start looking at retest ATHs into 7,700 as the AI-bubble reflation combines with the possibility of declining rate hike odds.

BOFA had a note out yesterday discussing Nasdaq in bubble territory, which implies “high volatility to both tails”. We’re not sure how that is different from how NDX has performed the last 2 months. Regardless, one hedge they discuss is to sell Dec SPY puts to fund long Dec QQQ puts. Were paraphrasing this as the volatility of the NDX has greatly outperformed SPX, and so and risk off situation could be much more violent in NDX over SPY. This is a theme we have discussed at length the last few days and weeks: NDX become an index quite distinguishable from SPX as the outperforms.

To help put the vol divergence into perspective, QQQ has an IV rank up near 100 today, vs SPY at ~37. This is a shockingly high IV rank for QQQ’s, some of which may be attributed to MU earnings last night and CPE this AM. This implies that options are quite expensive in both instruments, but particularly in the QQQs. If rates cool off, this could imply a lot of vol can come for sale which can support stocks. However, any downside may also be met with selling vol because this level of vol is just hard to realize. On this note QQQ has a 1-month RV of ~28% and a 1-month realized of 31% vs SPY at 17 and 18%, respectively.

We will start to worry about this stock up, vol up and a crash/spasm indicator when COR1M goes back <8. That being said, the short term spasms may have thus far been throttled because the QQQ vol is just so high. Its been realizing 2% daily moves and so you can argue that anything less that 2% is “average”.

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