Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are flat, after being down more that 50bps overnight. All eyes this AM are on the 8:30AM NFP.

Resistance: 5,950, 6,000

Support: 5,900, 5,847, 5800

Instability reigns in this market environment, with bulls likely unable to get a solid footing until/unless the SPX recaptures 6,000. Therefore we look to fade rallies that fail to close >6k. To the downside, a break <5,900 signals another potentially large move lower, with 5,800 the big target.

As you can see in the SPX term structure chart, IV’s are quite elevated ahead of this NFP print, with the 0DTE straddle priced at pretty rich $53/89bps (ref 5,910, IV 34.4%). This signals the market is obviously looking for a pretty large swing today, and we agree. Even if the NFP is just in-line, there should be some event-vol to contract which could create a “day trade” pop higher. Should we open >5,900 after the NFP, we will favor this “pop higher” scenario into 5,950.

The tricky part here, is that NFP is just one data point in a short-term series. Next week is PPI & CPI, which are sure to garner as much attention as NFP.

The point here: we look to tread lightly and play swings vs trying to establish a longer directional view. Further, we see elevated tail risk in this environment – which is our prime concern.

Here, as we see it, is the risk: vols are elevated, but not overdone. The SPX is realizing 15% (RV), and so current IV’s (like VIX 18) are warranted. Yes, this means that there is potentially some vol to crush which would likely push equities higher.

However, major vol spikes happen from these “percolating” IV levels. Consider that this is the highest level of RV since the August crash, wherein VIX went from ~20 on Friday 8/2 to a “boiling” >50 on Monday 8/5.

Compounding the situation is negative gamma <5,900, as well as a call-heavy Jan OPEX. This all likely requires selling stock to hedge should equities spill lower.

To be clear: we are not calling for a giant VIX spike to happen – that requires a trigger. But if markets are served even a moderately negative catalyst then the potential for a big vol spike is at hand.

One of the things that’s caught our attention is this absolutely nasty NVDA head-fake from last week. The stock had inspired a massive rally in semis to start the year, only to puke it all back in days. This AM we see the stock down another ~1.5% on “tariff talk”, but the nasty reversal started after CES on Monday.

But wait – there’s more!

NVDA’s CEO popped the quantum-computing bubble this week, too. This, along with crypto, was was on the most frothy pumps into December. Below is IONQ, which lost a wicked -39% on Wednesday.

These memes falling back to earth is long term a healthy signal, as it shows excess is coming out of the market. The issue here is that we see little to now inspire a market rally higher outside of a clearer macro picture and/or earnings. We can see this in net

call volumes

, as plotted below. In this case

call volumes

surged the first week of Jan, then plunged with meme-chasers now licking wounds, but traders have not yet started to buy put protection.

Macro is not likely “set” until FOMC on 1/31, and earnings will pick up in earnest at that time. This suggests that the next 1-2 weeks could be more about flows into OPEX and around the macro uncertainty, vs traders seeking to express long term directional views.