Macro Theme:

Key dates ahead:

 

Founder’s Note:

Futures are off 10bps ahead of PCE.

TLDR: Yesterday was quite dull, and we risk being lulled to sleep again, today. But the situation is quite unstable and likely remains so until deals are signed. Not just 4/2 – traders need some certainty of agreements, even bad ones. In the options space, deals = vol. No deals = high vols.

5,700 is the dividing line today, where light to moderate positive gamma exists >=5,700, and its increasing negative gamma below. This suggests traders may want to lean long 5,700, with resistance in the 5,740-5,750 area.

We think its best to avoid avoid longs below 5,700 until first support, for today, at 5,640. Below there we’d watch for a possible bounce at 5,600, but the major, longer term support is at 5,565 into Monday’s JPM roll.

If you look at our original gamma model (dealers are long calls & short puts), you see that net

call gamma

 (positive gamma) overtakes net

put gamma

 (negative) at 5,272. Historically, this is seen as a “zero

gamma flip

 point”, wherein volatility should contract above that level, and dealer flows are supportive. While this assumption is naive compared to current models seen in TRACE (and those being launched on 4/2), we still think the general idea/sentiment has & can serve us well. The other interesting thing about 5,727 is that the much-watched 200d MA is near there at ~5,740 – a level technical gurus tout as critical.

That 200d level meant nothing over the past few sessions, but knowing it’ll drag a core segment of analysts into the market is notable. We do not think a move back above this level is likely until at least 4/2 (and/or if early deals are made).