Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are +40bps, with no major data points for today. Tomorrow is Powell’s Capital Hill testimony, and Wednesday is CPI.

Resistance: 6,100

Support: 6,050, 6,020, 6,000

We continue to view 6,100-6,120 as major resistance, and 6,000 as major support. Below 6,000 we are “risk off” and look for a quick move to 5,950.

Friday was the 3rd time in the last few weeks that the SPX violently lost the 6,100 level. Friday’s decline came on more tariff headlines – headlines which led futures to open at 6,015 (-60 bps) yesterday (Sunday). Futures have obviously since recovered to +40 bps, but this all speaks to the price jumps that are so prevalent in this market.

TLDR: We need a close >6,100 or <6,000 to help establish some direction: both in terms of SPX price and volatility. Until then it seems gappy, frusterating “chop” is on the menu.

These falls breakouts, and illiquid gaps should be causing volatility to hold a premium…like a tariff on vols. Diving in, we see SPX 1-month realized vol is 13%, and we see +5DTE ATM SPX IV at….13%. ATM vols for this week are slightly more elevated, as you can see below, but that simply reflects some headline hedges. There does not seem to be any concern/positioning for a prolonged spike in volatility.

We have written recently (the last two Friday’s) that things seemed staged for a blow off top, as the SPX was poised just under 6,100, with single stocks seemingly ready to rebound. The very challenging thing here are these headlines which continue to break the bullish momentum. These headlines break into what feels like a very illiquid, unstable environment which generates large price gaps (i.e. “big chops”). This leads to a place wherein we want to maintain an edge toward a breakout (particularly with a benign Powell/CPI), but also holding some OTM puts (“long vega”) due to the very real idea that one of these downside gaps could stick, resulting in a major prolonged downside move (with eyes on 5,800 in that scenario).