SPX has an expected move of about 119 points heading into the week of April 13. This week kicks off earnings season, but we see the expected move continue to get smaller as VIX continues to drop. Implied volatility is now about half of what it was about a month ago.

Of course, IV was at unsustainable values and was eventually going to come back down. I don’t think that is a surprise to anyone. I think the bigger surprise is SPX rallying 500+ points in less than 2 weeks. The move back up has been incredible, but could be in jeopardy as we head into this week.

The upper end of the expected move is around 6936, still below the current all-time highs. It would take well over a 1.5 standard deviation move to get there, almost 2 standard deviations. The lower end of the expected move is around 6697, or roughly at the psychological level of 6700. This is about half way between the gap up level from this past Wednesday.

The talks with Iran didn’t go well this weekend, so there is risk of futures gapping down Sunday night.

The one thing that has remained true however, is that almost every Sunday night gap down has been bought back up by Monday morning. Also given the fact that we just came off a surprising 500 point up move, there are a lot of people who missed it.

While we haven’t officially dipped yet, this could be the first potential dip since the huge rally. Does FOMO kick in and is buy the dip back? I think the price action heading into tomorrow if we do gap down will give us a clearer answer.

For now, my money is on buy the dip.

Until we start taking out the lower end of the expected move with momentum, which we didn’t even see in March, I think ‘buy the dip’ will continue to work.

As we kick off the new week, the first key level to the downside is 6740 followed by 6700. If both of these are taken out with momentum and we sustain downside pressure, then I think the buy the dip theory needs to be reevaluated.

To the upside, we have 6850 and 6900 as the first key levels.

Earnings season is kicking off as well and there could be pops and drops in each direction. This week is mostly financials with some tech mixed in there. We’re still a couple of weeks away from big tech reporting, but we know that the financials are the next most important sector.

Watch the key levels, but more importantly, watch how /ES trades tonight and into tomorrow. If there is a huge gap down that gets bought up, I think we will have our answer.

Good luck!