Reference Price: SPX 5659
The Week Ahead
U.S. futures soar higher as U.S. and China moved to ease trade tensions early Monday, agreeing to a temporary 90-day reduction in reciprocal tariffs on each other’s goods, according to a joint statement released by both governments on X.
– The United States will remove the additional tariffs imposed on China on April 8–9, 2025, but will maintain all duties enacted before April 2, 2025. These include Section 301 and 232 tariffs, fentanyl-related tariffs under the International Emergency Economic Powers Act, and Most Favored Nation tariffs.
– The U.S. will suspend its 34% reciprocal tariff (imposed April 2, 2025) for 90 days, maintaining a 10% tariff during this period.
– The 10% tariff sets a fair baseline to support domestic production, strengthen supply chains, and prioritize American workers.
– China will reduce its 125% tariff on U.S. goods to 10%.
– China will eliminate retaliatory tariffs announced since April 4, 2025, and suspend or remove non-tariff countermeasures enacted since April 2, 2025.
– China will also suspend its 34% tariff (announced April 4, 2025) for 90 days, retaining a 10% tariff during the pause.
On Sunday, President Donald Trump announced plans to sign an Executive Order to lower prescription drug and pharmaceutical prices. As a result, healthcare stocks are in focus this week, with XLV the only sector trading lower in premarket.
Participants will also focus on inflation data—most notably April’s Consumer Price Index (CPI)—and Fed Chair Jerome Powell’s speech on Thursday at a conference in Washington, D.C. This comes in light of the central bank’s recent decision to hold interest rates steady and its warning about potential stagflation risks.
The first-quarter earnings season will continue to roll on, with hundreds of companies set to report this week, including Dow 30 components Cisco (CSCO) and Walmart (WMT). Also in focus will be 13F filings – regulatory disclosures by major funds of their quarterly equity ownership changes.
Market Regime
The Gamma Index, which measures dealer gamma exposure (GEX), is neutral at -75M, trading above the Flip of 6045. Despite the light negative/positive gamma over the past couple week, flows have been supportive since April 25, 2025, as indicated by the price trading above the Flip and consequently within the ‘buy the dip’ regime.
Absent a negative catalyst and a subsequent break of the Flip, SPX should remain supported by volatility compression (vanna) and time decay (charm) this week as we approach the May 16 OPEX. This may lead to ‘boxing in’ action between key gamma levels, similar to last week. This OPEX is relatively light compared to the large quarterly expiration in June.
Levels
Last week, SPX consolidated within a bullish trend, trapped between key gamma levels at 5700 and 5600. This morning, it’s breaking out, set to open with a 3% gap to the upside.
The Call Wall zone currently stands at 5800/5815, generally regarded as the upper bound. The 5850 and 5900 strikes are also notable, suggesting this upper bound could shift higher if bullish flows enter the market. However, we view 5900 as the maximum upside for the week, likely becoming a point for call overwrite strategies and adding resistance overhead.
On the downside, we now view 5700 as support. A false break below this level would return price to last week’s trading range, with 5600/5575 as the lower bound. A clean break lower opens the door to the key 5500 level. Gamma is essentially lightly negative into 5500, moderately negative below it. This suggests there isn’t much downside put protection. If any negative catalyst emerges it could prompt participants to chase puts and bid up volatility, potentially leading to a sharp downturn. While we don’t want to anticipate this, if we observe a one-sided market, all sectors in the red, and volatility rising, it could present good downside momentum opportunities.
There are also two key technical levels in play: 5785 (March high) and 5881 (2024 closing price).
Volatility
In terms of VIX positioning for the upcoming OPEX on May 20, there is a high concentration of open interest at the 20 strike for both calls and puts (max pain), and 17 for puts, which we view as a potential lower bound heading into VIX OPEX. On the call side, the 25, 30 and 35 strikes stand out, making them potential upside targets in the event of a volatility bid.
VIX levels: 14.7/15, 17, 19, 19.7/20, 21.8/22.5, 25, 27, 28, 30, 32, 35, 37, 40, 41
The 5-day average true range (ATR) is 82 points and has declined rapidly, validating the sharp move lower in the VIX. Further compression seems unlikely unless a U.S.–China deal sparks renewed bullish positioning and subsequently drives a build in positive gamma.
There is a clear relationship between GEX (Gamma Index) and volatility. The graph below illustrates that the higher the positive gamma, the tighter the return distribution.
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