Week of Nov 26 2023

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

The state of the funding market is a space to watch. The risk of reserve scarcity has been low; the pain point last September 2019 was 6.4% of GDP. Reserves are now 11.5% of GDP so the RRP drain and QT can continue for the foreseeable future. But with bill issuance set to stay lofty and QT continuing to shrink SOMA, the risk remains that the removal of liquidity doesn’t play out in linear fashion… necessitating a more dovish shift in policy sooner than Powell would prefer - Ian Lyngen, BMO

In the 1950s an earnings recession preceded an economic downturn. Between Q4 of 1950 and Q2 of 1952, S&P EPS plunged 18% peak-to-trough, even as the US economy expanded. Inflation peaked two quarters before EPS troughed on a TTM basis and that’s similar to how the current EPS cycle played out - Bank of America

Long cash continues to be flows story of the 2020s. $1.2 trillion flowed into cash funds in 2023; more than Treasurys ($186b), high grade credit ($145b), and global equities ($143b) combined. Ostensibly, that’s dry powder (sideline cash) that can be deployed into assets once various coasts are clear - Bank of America

Mirroring the increasing concentration in the equity market, concentration in hedge fund portfolios has risen. Our crowding index has now hit a record high. Hedge fund net exposure to the big seven currently ranks in the 99%ile since 2016, versus just a 12%ile position at the beginning of the year - Goldman Sachs

Week Ahead

In the United States, investors will closely follow several key economic indicators in October including: the personal income and outlays report; the second estimate of Q3 GDP growth rate; and the ISM Manufacturing PMI.

It is anticipated that PCE price inflation slowed to 3.1% last month, marking the lowest rate since March 2021. The core rate is expected to ease to 3.5%, the lowest in over two years. Additionally, US GDP growth is expected to be revised higher to 5% from the initial 4.9%. This can be attributed to accelerated consumer spending and robust exports.

The ISM data is expected to indicate a continued contraction in the manufacturing sector. Furthermore, insights into the US central bank's policy direction will be sought from speeches by several Federal Reserve policymakers, including Chair Powell's remarks scheduled for Friday.

Other important data to watch includes new and pending home sales, Case-Shiller home prices, and advance estimates of the goods trade balance and wholesale inventories. Additionally, the earnings season will continue with expected results from Intuit, CrowdStrike, Workday, Snowflake, Synopsys, Salesforce, VMware, and Dell - Trading Economics

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Calendar (UTC-4)

- TradingEconomics

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Macro Dashboard

- @Koyfin

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	235.82	235.95	228.39	January 1, 2023
Forward 4-qtr PE	🔵	19.3	19.1	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5.17	5.23	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	10.16	11.14	-0.98	-8.8%
SPX GEX Flip	🔵	4,497.5	4,442.5	55	1.24%
SPX Skew Adjusted GEX	🔴	-2,534,779,228	-1,963,747,224	-571,032,004	-29.08%
Equity Put/Call Ratio (CBOE)	🔵	0.91	0.54	0.37	68.52%
VIX Put/Call Ratio (CBOE)	🔵	0.46	0.41	0.05	12.2%
SPX/W Put/Call Ratio (CBOE)	🔵	1.83	1.46	0.37	25.34%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

Dec E-mini S&P 500 futures finished the session at a one month high of 4568.25 Friday, adding 1.00. Overall volume was a light 576,633, with Dec seeing 572,702 done. Across all maturities, open interest finished the session at a one month high of 2,257,272, adding 10,474 (0.47%). Dec open interest increased by 8,953, or 0.41%, to 2,202,029.

Option volumes were highest for the Dec EW1 100 call (7,400) and the Nov E5C 3770 put (41,850). For Dec options, the 4750 calls had the high volume with 3,389 done, and the most active put was the 4500 strike with 3,249 contracts traded. Calls with the highest open interest are the Dec 4600 strike (99,126), and for the puts are the Dec EW3 3350 strike (69,272).

E-mini S&P 500 implied volatility finished the session down as the 30-day at-the-money decreased by 0.56% to close the day at 10.11%, a twelve year low. Historical volatility (30-day) closed the day at 14.94%, dropping by 0.15%, to a one week low. The volatility spread (30-day, IV-HV) finished the session at a one month low of -4.83%, having fell 0.41%.

Higher TF (W → D) BULLISH - It’s rare for the S&P 500 to rally 8% in November (it’s only happened a handful of times since 1928). Key discretionary cohorts as well as systematics were under-positioned, having de-risked materially during the Q3 equity selloff while downside hedges were deep in-the-money. When the broad market turned, the stage was set for a vicious rally feedback loop. Clearing LH 4566 on a closing basis marks an important Higher TF BOS, confirming a transition from Q3 downtrend cessation to Q4 uptrend resumption with scope to retarget YTD HI 4634.50 (+1.45%) now within +1σ implied weekly range - tempered by unmitigated Higher TF supply, now crowded long-positioning, and structural weakness below (pane 2, circled).

Lower TF (3H → M30) BULLISH - Daily, Weekly, Monthly (and soon an outside Quarterly reversal) are synchronized 1TFU. Pullbacks have been shallow, indicative of Higher TF funds both active and systematic buying higher and continuation of the positive GEX regime - coincidental with steadily dismantled implied equity volatility to levels not seen since 2019. A more prominent pullback phase will eventually emerge when volatility inevitably reverts to the mean, but the timing of a turn is impossible to predict and usually requires a catalyst. Moreover, despite overbought RSIs, price action neither shows angulated departure from our multi-timeframe momentum model. Fact is, a market becoming overbought and staying overbought confirms strength.

Bull v Bear

This Week (30d ATM IV 10.11% v 30d RVOL 14.94%)
Bulls will seek to extend upside and price acceptance > WHI on a closing basis. Upside: 4600 (+0.70%) and YTD HI 4634.50 are within +1σ (W) 4636 (+1.48%).
Bears will seek to cause cessation of DTF 1TFU on a closing basis. Downside: WLO 4520 (-1.06%) and GEX Flip 4506.50 are within -1σ (W) 4502.50 (-1.44%).

Last Week (4568.25 DEC23 +0.89%)
Bulls will seek to extend upside > WHI and confirm a BOS > WHI 4541.25 on a closing basis. Upside: 4458 gap closure and 4600 is within +1σ (W) 4602 (+1.65%).
~~Bears will seek to cause cessation of DTF 1TFU. Downside: Negative GEX < 4454.00 coincides with -1σ (W) 4455 (-1.62%); 4430.50 breakout backtest (-2.14%).~~

Indicators

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Markets

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
Current Year Performance	🔴 Optimism	🔵	19.23	17.4	10.52	10	-10
Average of All Years	⚫️ Index (N/A)	🔵	6.2	3.83	61.88	0	0
Intermediate Term Optimism Index	🔴 Optimism	🔵	71	66	7.58	65	35
CRB Optix	⚪️ Normal	🔴	47	48	-2.08	60	40
Bond Optix	🟢 Pessimism	🔵	40	34	17.65	70	40
HYG Optix	⚪️ Normal	🔴	63.71	77.66	-17.96	80	20
US Dollar Optix	⚪️ Normal	🔴	52	54	-3.7	60	40
BBB - AAA Corporate Bond Spread	⚫️ Index (N/A)	🔴	0.94	0.97	-3.09	0	0
Crude Oil Optix	⚪️ Normal	🔴	45	46	-2.17	60	30
Gold Optix	⚪️ Normal	🔵	57	54	5.56	70	30

Seasonality Average v Current Year Performance

Intermediate Term OPTIX v CRB OPTIX

US Dollar v Corporate Bond Spread

S&P 500 Seasonality

Bonds v HYG OPTIX

Crude Oil v Gold OPTIX

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Positioning

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
Options Speculation Index	🔴 Optimism	⚪️	1.19	1.19	0	1.15	0.9
ROBO Put/Call Ratio	⚪️ Normal	⚪️	0.68	0.68	0	0.5	0.75
Stock Bond Ratio	⚪️ Normal	🔵	1.43	1.15	24.35	2	-2
GEX / Market Cap Ratio	⚪️ Normal	⚪️	0.1	0.1	0	0.15	0.05

VIX Put/Call Ratio v Equity Put/Call Ratio

S&P 500 E-Mini COT Trailing 13-weeks (Futures & Options) - CFTC.gov

Dow E-Mini COT Trailing 4-weeks (Futures & Options) - CFTC.gov

Stock / Bond Ratio v GEX / Market Cap Ratio

Nasdaq E-Mini COT Trailing 13-weeks (Futures & Options) - CFTC.gov

Russell E-Mini COT Trailing 4-weeks (Futures & Options) - CFTC.gov

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Sentiment

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
Small Trader Put/Call Premium	⚪️ Normal	⚪️	0.53	0.53	0	0.4	0.6
Risk On/Off Index	🔴 Optimism	⚪️	52.38	52.38	0	50	0
MOVE Index	🟢 Pessimism	🔴	107.43	113.11	-5.02	60	100
2y / 10y Yield Curve	⚫️ Index (N/A)	🔴	-48.62	-45.22	-7.52	0	0

VIX Sentiment v CSFB Fear Barometer

Risk On/Off Indicator Rollups

MOVE Index v 2/10 Yield Curve

Risk On/Off Indicator Rollups

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Volatility

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
VIX Term Structure	⚪️ Normal	🔴	0.82	0.87	-5.75	0.8	1
Component Correlation	⚪️ Normal	⚪️	0.46	0.46	0	0.35	0.55
Gamma Exposure (x000)	🔴 Optimism	🔵	4,575,340	4,511,810	0	4,000,000	1,000,000
Credit Default Swaps	⚫️ Index (N/A)	🔴	403.96	415.17	-2.7	0	0

VIX Term Structure v S&P 500 Component Correlation

Gamma Exposure v CDX

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Breadth

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
SPY Breadth (% > 50d MA)	🔴 Optimism	🔵	76.55	72.06	6.23	70	30
SPY Breadth (% > 200d MA)	⚪️ Normal	🔵	58.35	54.51	7.04	70	30
NYSE TRIN	⚪️ Normal	🔵	1.12	0.89	25.84	0.5	2
NYSE Advance Decline	⚫️ Index (N/A)	🔵	683,887	681,963	0.29	0	0

SPY Breadth % > 50d & 200d MA

NYSE TRIN v Advance/Decline Line

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Sources

Narratives - Heisenberg Report
Week Ahead - Trading Economics
Earnings - FactSet & LESG I/B/E/S
Options - tradingvolatility.net
Futures - CME Group
Indicators - Sundial Capital Research