Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are up 30bps this AM. CL is off 2% to 101, and US10Y 4.98%.

French yields came in a bit this weekend to 4.92% after a relative calm.

TLDR: Given we are under the 7,690 Risk Pivot,

we remain skeptical of equity bounces. A break of 7,600 implies a test of 7,300s. Resistance is at 7,700, and if that level is recovered we would shift back to a risk-on stance.

The SPX gamma picture tells an interesting story on positioning. Positive gamma remains driven by 0DTE, and that positive gamma peaks into ~7,700 which is the resistance area for today. To the downside, we note light support at 7,600, with negative gamma increasing down into ~7,300. If you recall from recent notes we’ve been flagging 7,400 as a negative gamma trough and our “wash out” downside target. Since traders have added long put protection, its added to market maker short positioning, which drives more negative gamma below. Given this, we have to update our “wash out” level to 7,300.

SPX vol is starting to wake up, as the VIX is currently 19 while 1-month SPX realized vol is just 9.9%. That is a big spread, and it will be tough to maintain that spread unless the SPX starts to move. A bit of that vol premium is FOMC+elections – but the vast majority of that sure reads like trader bracing for bigger moves. From this perspective, options are pretty expensive.

That being said, it continues to be remarkable how stable SPX prices are given the the tech route, and EU drama. Below are running tallies of days without an X% move, and you can see we’re nearing time horizons for which we’d expect a 2 or 3% SPX decline.

Lastly, on the France situation, the stress there risks some contagion. We “don’t do” macro, but we take notice where there is excess volatility in major assets. From what we’ve read, various French spreads are blowing out at a sharp pace and other EU nations are starting to simmer. Granted, this could all cool off quickly, but US markets already show credit-cracks with respect to AI-debt, and the additional fear of EU debt issues can only make funding here a bit tougher.

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