Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 30bps, with the SPX retesting the 7,800 level. Yields are flat: 10Y 5.25%.

SPX gamma looks fairly stable in the 7,700-7,800 range through to 10/16 OPEX next Friday. We also have a long weekend, which generally brings out the volatility sellers, which is a tailwind for stocks today. Next week we face CPI which is currently carrying a healthy dose of event volatility. Earnings also pick up next week.

Yesterday we talked about the loss of call skew in the bond ETFs – a signal that hopes of lower rates was fading.

Today we note that the call skew is starting to fade in top single stocks, too. This seems to be aided on by the report yesterday that OpenAI wasn’t making as much money as thought ($50bn vs $70bn). The result of htis is that stocks are sliding from right to left on Compass, which is a signal of declining call excitement. This is potentially a major issue for stocks: without the AI trade what do bulls have?

That question isn’t one for today, but it will likely be decided over the next 1-2 weeks as the Mag & major tech co’s report, then we toss on CPI+FOMC and elections. Throughout these last few months of macro calamity (Iran, rates) the bulls have been able to hang on this AI bid, and its quite possible it re-invigorates, however that trade is certainly looking like its on the ropes. SMH, for example, is down 7% since Tuesdays highs. If tech rolls over we’d expect a break of the Risk Pivot (7,690) and that would be our flag to position more into shorts. For now, we remain above that Risk Pivot level, and we therefore look to play intraday mean reversion in the context of an up-trend in equities.

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