Macro Theme:

 

 

Founder’s Note:

Futures are 10 bps lower, with no major data out today.

Resistance: 5,950 & 6,000.

Support: 5,920 & 5,900.

Our view heading into NVDA earnings was that it would be a directional trigger for equities writ-large, leading to a sustained move into December. We’ve been of the opinion that the potential move out of NVDA earnings and into year end was underpriced, and we maintain that view.

While yesterday was a rather volatile session, the SPX ultimately recovered last weeks pre-OPEX highs. In the chart below you can see the SPX broke lower right at the aforementioned OPEX, and appears to now have

pivot

ed higher with the passing of VIX Exp/NVDA.

The big wrench in rally plans is the recent geopolitical escalations. If those subside it could provide a vanna-based lift for equities, leading SPX up into 6,000

Gamma is mildly positive all the way up through 6,055, as shown in Trace. This implies equities should remain fairly stable, which in turn has us looking for higher equity prices. Accordingly, we remain leaning long until/unless SPX breaks <5,900.

From an

absolute gamma

perspective (gamma from raw OI), SPX 6,000 has re-established itself as the largest gamma strike on the board. This is currently our major upside target. If that level can be overcome, eyes will quickly turn to 6,055 (Dec JPM collar strike).

For earnings, NVDA was pricing in a 1-day move of ~8%, and the stock was up a mere 50 bps. Looking at NVDA IV’s, we’ve compared Wed closing IV vs todays (via Fixed Strike Matrix). As you can see the matrix is largely red, indicating IV declined after ER. This makes sense, as IV’s almost always drop after earnings.

What is interesting here is that if you check the zone largest IV decline, its for short dated, near-the-money calls (yellow box). This implies there is a rather heavy call selling position(s) in place.

Check out our beta GEX model – you can see dealers apparently have on a rather large positive gamma position into 150 (11/22 line). This backs the idea that traders have been selling calls, and suggests dealers should be selling NVDA stock into strength. Further, we see this positive gamma position flipping to a negative gamma position following today’s OPEX (11/25 line). The implication is that NVDA may have an easier time with upside next week as short call positions clear.

This continues to be intriguing as we look at SMH performance yesterday vs NVDA, with SMH outperforming NVDA by 100bps (SMH +1.5% vs NVDA +0.5%). 23% of the SMH weighting is NVDA, so this implies the rest of the chip sector was quite strong. It also looks like NVDA seemingly struggled with that 150 peak-positive-gamma zone, backing the idea that dealers had positive gamma upside (and were sellers into 150).

The takeaway here is that we remain comfortable with our view that the market can continue a directional run into December, and the direction appears set to express to the upside. This could be particularly true if the NVDA “positive gamma gone” projection is correct.