Founder’s Morning Notes – 3/03/2022

• Futures were quiet overnight. It was a tight, balanced range giving us little guidance for the open. Let the market settle in a bit before you pounce.
• 4400 and 4420 are resistant, with 4380 (the Volatility Trigger) as the key pivot area and support at 4330.
• Fed Chairman Powell testifies in front of the Senate committee at 10 AM EST – should be a non-event and a repeat of his House testimony yesterday.
• Monetary policy remains an important driver of uncertainty in markets.
• Powell gave traders more clarity yesterday on March rate adjustments, which lifted equity markets. 
• Yesterday, the market pushed higher into the large, 4400 strike, where the bulk of call volume traded. There was a slight increase in call interest in the 4400-4500 range.
• A lot of this call volume likely was sold short. Material long call positions don’t make much sense given the high carrying costs (decay until FOMC due to high implied volatility and time).

• From an options perspective, the 4400-4500 area is resistant. The VIX at 30 suggests traders are looking for 1.8% daily S&P 500 moves.

• As we anticipate “not much” coming from today’s Fed testimony, implied volatility may shift lower in the short term. The volatility compression gives some edge to markets holding up (due to Vanna flows) in this general price range (4350-4420).
• On a larger time frame, we continue to believe that the possible price distribution remains skewed lower into the critical March 16-18 (FOMC, OPEX) time frame. Models suggest significant upside resistance near 4500 (+2.5% from current levels). 
• Due to the negative gamma framework, something as simple as a negative headline could spark a quick slide down under 4100 (-6% from current levels).
• Balance Rules are in play this morning. If the market looks above 4400 and then fails to find acceptance, chances are we will go back to the bottom of the range down at 4275 near the WEM Low.
• If there is acceptance, you double the range for the target high.
• The range is 125 points, so the target is 4525, but…
• The price has to get through the daily mean (21-day line), 200-day line, weekly mean (21-week line), the primary downtrend line, and the Weekly Expected Move high. If the price conquers all of that, it takes the market to 4486.
• How the market handles this resistance ladder will tell us a lot in the short term.
• Of course, the market may chicken out and return to the other end of the balance area. Who could blame it?
• Let’s move our stop to 436.50 for both Navigator Swing Strategies. That locks in a profit but gives trick and company some room to try to fool us on a breakout.
• The market just made a big move on the weekly jobs report, so there could be a slight Gap, and you may need to apply Gap rules.
• The overnight low is a 45-degree angle low at 4367.50, which generally results in the low being secure.
• Yesterday, the Value Area cleared the previous day’s Value Area with no overlap, supporting acceptance of the higher prices.

Stay nimble!

A.F. Thornton