Macro Theme:

 

 

Founder’s Note:

Key SG levels for the SPX are:

• Support: 5,517, 5,500
• Resistance: 5,550, 5,560, 5,600
• 1 Day Implied Range: 0.57%

For QQQ:

• Support: 475, 470
• Resistance: 480, 485, 490

IWM:

• Support: 220, 219, 215
• Resistance: 225, 230

Earnings reactions are in focus today:

• TSLA -8% premarket to 225.
• GOOGL -3.5% to 175

These 2 earnings names (TSLA, GOOGL, GOOG) are providing ~25bps of negative index pressure. Adding in META -2.2% (in kind with GOOGL) – that is more that -30bps just from these top 10 SPX/NDX weightings (see this note for background on this concentration topic).

The next big earnings announcement is AMD/MSFT on 7/30.

We start today with ES & NQ futures down 64bps and100 bps, respectively. This leaves ES testing the large SPY 550 equivalent, and NQ testing QQQ 475.

We believe there is large positive gamma from SPX 5,500 – 5,517 (SPY 550), and positive gamma building < QQQ 475. This implies solid support at these current futures prices (ES 5,560, NQ 19,700). Therefore, we give edge to a bounce this morning, with 5,550 – 5,560 as resistance. Contrary to yesterday, there are currently no big 0DTE positions in play.

If 5,500 SPX breaks, it is a “risk off” signal, and we would look for a relatively fast move to 5,400.

On Friday’s close, the SPX was near current pre-market indicated prices of ~5,515.

However, we now see that fixed strike IV’s are currently a bit lower vs Friday as you can see below (red boxes). This suggests that the current equity downside is a function of drag from top earnings names (and correlation “spasms”) more-so than “macro fear”. If there was a major risk-off sentiment, we would expect to see this matrix as a wall of green (i.e. higher IV’s). Additionally we now see the VIX at 15 vs 17 at Friday’s close.

The window of positive IV’s below relates to 7/25 GDP, 7/26 PCE & 7/31 FOMC. Updates from these data points, and more critically 7/31 FOMC, will likely trigger a more directional play into August OPEX. For now, we may just be pinging about in the 5,500-5,600 range.

Turning to TSLA & GOOGL, neither have a particularly aggressive put-skew into earnings, which suggests somewhat limited downside momentum from current pre-market prices.

We think TSLA has room to slide down to 220, and 200 in the longer term as there are a lot of positions down to that level. The idea being that as positions wane, associated dealer hedging pressures do, too.

We are a bit more constructive on this GOOGL dip, as below the 170-175 range we show a dramatic reduction in downside positions. Barring significant rallies from these current lows, its likely for both TSLA & GOOGL that Friday’s OPEX would offer some downside relief due to large gamma expiring. Watching

HIRO

this morning will also offer critical insights into traders expectations (i.e. are puts being sold into this weakness).