Macro Theme:

Founder’s Note:

ES & NQ futures are both flat at 5,360 & 19,985, respectively.

Key SG levels for the SPX are:

• Support: 5,250, 5,311, 5,300
• Resistance: 5,359, 5,370, 5,381, 5,400
• 1 Day Implied Range: 0.53%

For QQQ:

• Support: 460, 455
• Resistance: 470

IWM:

• Support: 205, 200
• Resistance: 210, 220

Jobless claims 8:30 AM ET.

As we chronicled last night (read here), yesterdays powerful move was fueled by massive long call positions coming into single stocks. That means while the S&P500 long (SPX, SPY, ES)

HIRO

signal was very average, single stock

HIRO

values were huge, and driven in a large part by NVDA (below). This single stock long call chase serves to pull up the S&P indexes, which was dragged up into a massive positive gamma zone at 5,350.

If NFP tomorrow AM is in-line, that likely releases the S&P up to the 5,400

Call Wall

into Friday/Monday. Further, the NVDA split is waiting to juice the market even more.

NVDA was +5% yesterday to new all time highs at 1,231 ahead of its 10-1 split on Friday (after the close). With yesterday’s move, it has replaced AAPL as the second largest market cap, only lagging MSFT. We’d further note that these top three stocks, AAPL, MSFT & NVDA, are 20% of the S&P500 weighting (~6.5% each).

Our view heading into yesterday was giving an edge to higher equities, but…we felt that wouldn’t likely happen until the FOMC (read here). The idea being that benign rate-related data and FOMC statements would release implied volatility, and push equities higher.

So, why did traders decide to buy all those calls & push equities higher pre-FOMC? Yields + NVDA.

Below we plotted the 10 year yield, where you can see exactly 1 week ago we were pressing recent highs near 4.65%. On this same day the S&P tested 4,200. Since then, a few data points have crushed higher-rate narratives, and the S&P yesterday closed at all-time highs. The idea here seems to be that this most recent data has cleared the risk of Powell being hawkish.

Even though we’ve seen rates drop & equities rip, at-the-money implied vol remains fairly elevated. As you can see, there is a bit of an IV bump related to tomorrow’s NFP, and next week’s FOMC. This is standard stuff, and the benign passing of NFP likely gives a final boost to SPX to 5,400 as IV’s take another step lower. Obviously a hot number throws a wrench in those plans, with 5,300 as major support.

If you zoom out from at-the-money IV, we see that skew has rotated out of puts and back towards calls.

You may recall that just 1-week ago the options world was buzzing about a bid to downside puts (read here). This is shown in the plot of 1-month SPX skew from last week (gray), wherein downside strikes were in the middle of the statical range. Today that downside put-bid has been stomped out (teal line<gray line), as IV levels are now back to statistical lows. Further, we see that calls (i.e. higher strike) are catching a bid (teal line>gray line).

Taking in the elevated at-the-money IV and skew

pivot,

we see traders are expecting a bit of market movement around these big data points, but the downside, left tail, is now being heavily discounted.

Finally, we wanted to turn back to NVDA and its 10-1 split this Friday night.

The last time such large companies split was in August of ’20, when both AAPL & TSLA split on 8/28/20. AAPL (candle plot) was +10% the week of the split to the Wednesday AM after the split (9/2/20), with the S&P (SPY, yellow) +5% in that same time period.

That pre-performance sounds familiar, right? NVDA is up +8% this week, and SPY +2%, with NFP tomorrow.

However, that crowded long was forced violently out 2 days after the split, leading to AAPL dropping 30%, and the S&P crashing 10%. That performance sound startling, but it was just an unwind of the gains made from the prior month, heading into the split(s).

Our point here is that these splits draw attention, and often retail players thinking that the split is unlocking some type of value – or at least they can access NVDA a “lower” stock price. We have not been watching this narrative, but we are watching it now as NVDA goes parabolic (+1.75% pre-market to 1,245). It is very interesting idea that a full Monday/Tuesday blow-off top would play into Wednesday FOMC, and a potential high in the stock.