Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat, with CL – 2.8%.

INTC +2% after earnings.

SPX now has mild positive gamma resistance band near 7,460, with the larger band near 7,525. The bigger story is that we now see negative gamma <=7,400, which suggests that a retest of that <7,400 area won’t be as buoyant. We’re also a bit hesitant to think that bulls want to hold short volatility positions into this weekend as the Iran situation has been heating back up. We really do not want to re-focus on that mid-East situation but the oil vol is forcing our hand (more on that below).

On this topic of positive upside gamma, which is driven by SPX call selling (dealers buying), we are seeing the SPX call skew flatten and the buy skew increase. This is seen by comparing last weeks IVs vs today. The pocket of read >=7600 suggests traders are selling calls up into the 7,600-7,700 range, while the downside strike IV into the 7k range is bid. This suggests there is some hedging. This is not a particularly bullish stance.

With the Mag 7 + INTC earnings thus far failing to inspire, it seems like the story here may be shifting back to one about oil. Below we have a variety of Equity, bond, and commodity ETFs on Compass. You can see that SPY, IWM, metals, and Bonds are all largely in the lower left quadrant which is “mild IV, high put skew” positioning. Top tech is “high IV, high put skew”. Conversely, we USO (oil) as the most call-heavy asset, with a moderate IV rank.

If you remember back to March, all assets shifted to a negative correlation with oil. Oil up(down) = rates up(down) = stocks down(up). This brought to life the Semi-stock long + energy hedge trade. The vols here suggest that trade may be coming back, just as we approach FOMC next week.

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