Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off 50bps, with JOLTS/ISM at 10AM EST and DELL earnings tonight.

SPX gamma remains positive across all nearby strikes, but the SPX is sitting on the 7,650 Risk Pivot.

Below that level we would flip to a tactical short, with eyes on a test of 7,600. Given current positioning, gamma is not negative until <7,500.

That being said, the market is only mildly shifting to a bearish stance. Below we have the 1-day change in SPX fixed strike vols, and you can see near term vols are up a bit from last nights close. This suggests a bit of consternation – and if these vols shift higher it will add vanna and vega-based downside pressure, which is why we hold the Risk Pivot at 7,650 despite some positive gamma below. We remind you that put positioning is quite low, as are vols, and so vol upside can run quite a bit.

What is the takeaway here? Consolidation is underway, and we don’t yet see positions in place for a crash. We lean short < 7,650 Risk Pivot, and lean long above.

With Friday’s pivot to hiking, we can also toss in higher oil prices to squeeze that theme more. The result is more focus on key economic data like NFP, CPI, and 9/16 FOMC. Throwing into this mix is the upcoming labor day, which could add some supportive decay to markets – hedging out a rate spike is an “out in time thing” and likely not something that breaks this weekend. There is a ways to go before the weekend, though, with ISM, DELL/AVGO ER, Jobless Claims, etc.

One of the main reasons we don’t yet see a full crash in the cards is that traders are leaning long into tech. Note the heavy call skew in DELL and AVGO for upcoming earnings. Traders are expecting good things – and so while the bar is high for big earnings gains, he underlying sentiments are clearly positive. There is another thing to think about there: stocks and bonds now have positive correlation. If you also just “go to cash” you are faced with +3% inflation.

So, where does one hide? Are we going back to the CD-laddering era of 2022?

Well, if tech is making money hand-over-fist (as NVDA ER suggests), then maybe tech can continue to be relatively bid vs non-tech. This AM NQ is off 117 vs ES 60, so that dynamic isnt in play today, but it is food for thought.

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