Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 10 bps, with JOLTS at 10AM EST.

The SPX is hovering right around our Risk Pivot at 7,690, with vols in mildly from last night.

What’s the trade? We continue to hold Nov tech calls, while rolling short dated (<=5DTE) S&P/Nasdaq put flies which would profit if the indexes were to drop <=-1%.

All eyes are on rates and AI. The AI narrative is struggling due to some lackluster Anthropic data that is out, and so we watch for Wed MU earnings for a “last hope”.

The major issue, as we see it, is that rates (candles) have somewhat decoupled from oil (blue). This is a problem for the narrative that oil is controlling rates, as it seems like rates are now moving higher on their own accord. Should oil drop sharply it would most certainly relieve some rate pressure, but the fact that the yields are jumping outside of oil presents more problems for Trump & Bessent – and those problems are chipping away at the equity market.

Note the chipping: From August highs, IWM is -8%, DIA -6%, RSP (equally weighted SPX) -5%, while QQQ is +2%.

Tech and healthcare are the only sectors within a few percent of their 52-week highs. And, as we said at the top, that AI story is under fire.

Despite this deterioration, traders are not buying puts – particularly in single stocks. You can measure this via the Opening Setup’s Signal Breakdown, wherein the Stock Put Flow is green. That indicates long single stock put demand is at lows. The index side is building, a bit, but we still see persistent SPX positive gamma (and indication of near term, near-the-money put selling).

The risk here is that yields or some “shot across the AI bow” finally leads to some equity capitulation/put/vol buying into an under-hedged market. That risk is higher if the SPX is <Risk Pivot (7,690).

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