Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are +20bps, with no major data on tap. Oil is off 2.8%.

Support is at 7,700, then 7,675. Currently there is negative gamma above, leaving resistance at 7,770 and 7,800.

The “Eyes On” chart is the MOVE Index today, which is launching higher. This as yields spiked over recent days. The rate of change here is certainly something, while the overall level of the index remains quite low – certainly less than 2022. This is a signal that the “macro matters”, and the setup here really seems to be “META vs macro”.

The fact that the Move jumped so much and VIX did not is only a bit weird, not apparently unprecedented (orange circle is the most recent date). Certainly if the MOVE continues to spike we’d think an equity volatility response would be triggered. Maybe that comes. However, if the MOVE comes down, we’d think that VIX would respond sharply and that would put a bid into stocks.

On that topic, yesterday markets were again sliding lower before Trump lobbed in one of his patented “we are near an Iran deal” quips. This one may have some legs, as Iran is making positive statements around an MOU before mid terms. That headline popped the SPX 65bps in minutes, while it took the full overnight session to grind down that same amount.

While 65bps is not exactly stunning, we have a broader point here: Tail risk – specifically right tail risk.

As we wrote on Sunday, the major indicies have been expressing higher realized volatility to the upside vs downside for the past few months. The daily returns of the S&P are below, and while there are more negative sessions, they are smaller in magnitude. This is a problem for shorts, and when it looks like the equity market has every reason to break it simply doesn’t, and they you are often served up with an outsized up-session. This is almost the mirror opposite of what one would typically expect in stocks: stable grinding upside, with occasional bouts of downside volatility.

IF the oil & rate situation can take a breath, we also have the META pump and MU earnings coming up. With mid terms on the table, if you get the AI complex working again then that right tail risk may become even more significant. We continue to think its worth owning some Nov or Dec AI-related calls in case this idea plays out.

As always, though, if SPX is below the Risk Pivot we will hold a core neutral or short position in stocks.

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