Macro Theme:

Founder’s Note:

Another day – another ~5,700-5,750 pin. And, while we yesterday closed by bouncing off of 5,700, futures are 40bps higher this AM. This places the SPX squarely back in the dominant 5,700-5,750 range.

That 5,700 level is again big support for today, with resistance at 5,730 & 5,760. Our “risk-off” level is now back to 5,675 (from 5,700 yesterday), due to some positive gamma strikes added in the 5,675-5,700 range.

China is showing some vol today, as they apparently announced less stimulus than expected. As a result Chinese stocks are down as much as 10%.

We’ve extensively covered why equity implied volatility (i.e. VIX) is elevated, and likely to remain so (here & here), but increasing vol is not an equities-only phenomenon. Rate vol is ripping (MOVE index back to 124), as is oil & FX vol. This is not always a signal that equities are going to drop sharply, but it is certainly a red flag.

What is lacking is a downside spark which would kick in reflexive downside flows (dealers needing to short into lower equity prices). That signal, we believe, is a break <5,675.

Not all is bad, as NVDA is ripping to +1-month highs. A large number of call positions were added to the 130 strike yesterday, with 125 serving as a large area of support into this Friday’s OPEX. NVDA skew continues to frame upside calls as relatively cheap, which implies NVDA upside is not a bad place to grab some end-of-year long exposure. In the short term, though, we do think that 130-135 is rather heavy upside resistance.

Zooming out, we will continue to keep a close eye on this. The most bullish thing equities could hope for is NVDA continuing to shifting higher, as that could lever up the entire equity complex (see here).