Macro Theme:

Key dates ahead:

Founder’s Note:

Futures are off slightly, with Jobless Claims at 8:30, and a PMI at 9:45.

TLDR: With the break of 6,400 yesterday we are now favoring a neutral to risk-off stance as negative gamma persists to the downside. Slippery downside is open first to 6,300, then a second level down to 6,175. Upside, for now, seems contained to the 6,400-6,425 level.

The SPX gamma map looks much like yesterday, wherein we had risk-off at 6,400. Today that key risk-flip level is at 6,380, with a pocket of negative gamma from that level on down to 6,300. On this point – if you missed last nights discussion of the “search and destroy” algo that has been active, and driving big 0DTE swings, go read it now.

Additionally we last night flagged the strong longer dated long delta flow that came in when the SPX hit 6,350. Given that, we are marking the general 6,350 area as “fair value” into tomorrow. If some data prints too hot today, and/or the market is spooked by Powell tomorrow, we think there is pretty fast downside on a break of 6,300 down to the 6,175 area.

Powell being neutral to dovish likely shifts the market in the short term back into lower correlation flows (COR1M shown below), meaning that “stock pickers” step up to pick which sectors benefit most from rate cuts. That lower correlation could be reinforced by NVDA ER. This brings us to a squeeze up into 6,500 which transitions to a very low vol/grinding/”zombie market” into Sep. The signal for this is the SPX recovering >6,400.

On the contrary, Powell not supporting cuts likely spikes correlation as traders shift out of equities and into other assets. Vol likely spikes in kind. <6,400 this is the major risk.