Week of Mar 19 2023

Market Wrap

EOW 11 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 3.7% 3771.7 → 4061.5)

VX Surface - RVOL Spreads - VVIX / VIX Ratio - Trailing 12mo

Narratives

Even if markets rebound from current levels in the short term, high uncertainty and lowered confidence levels are likely to mean an ongoing ‘Fat & Flat’ market given that valuations do not look particularly attractive. In this regard, we see two potential problems. The first is that the US equity market, long a significant outperformer, remains expensive relative to history and relative to real rates. Despite cheaper valuations outside of the US — a key factor in recent outperformance — other markets are unlikely to de-couple in any US-led correction. Even on longer-term comparisons, which can be a useful barometer at points such as this, the US equity market continues to look stretched, after years of low rates and strong technology sector returns — Peter Oppenheimer, Goldman Sachs

We believe lending standards will tighten more than they did during the dot-com bust, but not as much as they did during the GFC. The implication for US GDP drag is estimated at 0.25%. Tighter lending standards help to limit demand growth, sharing the burden with monetary policy tightening - Goldman Sachs

Banking crises are followed by tighter lending standards and lower risk appetite. Small businesses (which comprise 47% of private sector employees) are the most negatively affected, as they’re most reliant on regional bank lending - so lower availability of credit could cause a surge in unemployment - Bank of America

There was no sign of panic in equity fund flows last week, which found nearly $3 billion flowing into US stock funds, despite the largest inflow to cash since April 2020 and similarly outsized inflow to Treasurys plainly evidenced demand for alternatives to uninsured deposits - BofA

Week Ahead

In the US, all attention will be on the Federal Reserve's latest monetary decision following recent turmoil in the banking sector, which has added another level of uncertainty. Policymakers are expected to raise the interest rate by 25 basis points to 5% in an effort to cool the economy and bring down elevated inflation, despite the recent turmoil in the banking sector. Investors will also look for updated economic projections and dot plot estimates to get a sense of the Fed's insight into the terminal level, inflation, economic growth, and unemployment outlooks. Additionally, the Commerce Department will release February durable goods orders and new home sales figures. Meanwhile, S&P Global will publish March purchasing manager surveys measuring US manufacturing and services sector activities. Finally, the National Association of Realtors will report on sales of previously owned US homes in February - TradingEconomics

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Economic (UTC-5)

- TradingEconomics

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Earnings

- TradingTerminal

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 12-mo Estimate	🔴	221.49	221.55	230.43	September 30, 2022
Forward 12-mo PE	🔵	17.7	17.4	15.5	September 30, 2022
Nominal Earnings Yield	🔴	5.66	5.77	6.43	September 30, 2022

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	⚪️	22.23	22.19	0.04	0.18%
SPX GEX Flip	⚪️	3,997.5	3,997.5	0	0%
SPX Skew Adjusted GEX	🔵	-11,571,252,881	-15,355,140,939	3,783,888,058	24.64%
Total Put/Call Ratio (CBOE)	🔴	0.98	1.23	-0.25	-20.33%
Equity Put/Call Ratio (CBOE)	🔵	1.18	1.11	0.07	6.3%
VIX Put/Call Ratio (CBOE)	🔵	0.55	0.42	0.13	30.95%

SPX Net Skew-Adjusted Gamma by Strike - @tradevolatility

SPX Net Skew-Adjusted Gamma Change - @tradevolatility

VIX Net Skew-Adjusted Gamma by Strike - @tradevolatility

VIX Net Skew-Adjusted Gamma Change - @tradevolatility

Futures

June E-mini S&P 500 futures settled at 3947 Friday, off by 47.50 (1.19%). Overall, 2,264,500 contracts changed hands, with 2,224,268 traded in June. Combined open interest increased 35,495, or 1.40%, to end the session with 2,565,014 outstanding. The June maturity gained 2.33% (35,495) to finish at 2,091,141.

The March E3B 3250 put saw the most action with 16,000 contracts done. For April options, the 4030 calls had the high volume with 1,817 changing hands, and the most actively traded put was the 3550 strike with 3,779 contracts traded. Options with the largest open interest are the June EW3 100 call with 24,594, and the April EW 3400 put with 25,073.

Implied Volatility closed the day sharply higher with the 30-day at-the-money adding 2.18%, to finish at 22.11%. Historical volatility (30-day) closed the day at 17.38%, higher by 0.0728%, to a one week high.

Larger TF (COVID LO → Present) NEUTRAL - The LTF remains rangebound between 3820 → 4175 (+/- 4.5%), which continues to build cause for an eventual directional move. Week 11 featured extension of 1TFD (WLO < WLO.1) and retest of the OCT Breakout 3820 (-2%), from which a responsive bid emerged sufficient to retrace back above the QVAL and Supply Line. Weekly price action has respected quarterly value areas throughout this bear market cycle; and has once again swept the QVA before reverting back to value. Increased volatility and event risk will likely continue in the coming week.

Intermediate TF (Trailing 12-mo ) NEUTRAL - Cessation of the ITF trend has unsurprisingly led to an interim balance, despite the increased uncertainty - quite remarkable when contrasted to the bond market. This week’s settlement coincides with both the 200d MA and 6mo VWAP anchored to the 2022 LO. Sellers remain in control below the trailing 12-mo VPOC 3967.25 (+0.53%). Price acceptance > 2mo VWAP 4031.25 (+2.13%) creates scope to retest / recapture the MAR HI 4082.50 (+3.43%). Offering below WLO increases the odds of backtesting 3800 (-3.72%), within -2σ (W) range.

Short TF (Trailing 12-weeks) NEUTRAL - WLO 3839.25 (-2.73%) marked the first backtest of the 2023 LO 3814.50 (-3.36%) and a plausible QLO given the breakdown failure and reversion to mean. Despite abundant uncertainty, risk gets priced-in quickly. ”Knowledge is vol dampening and liquidations can’t happen when people are prepared for it” - Cem Karsen. The WTF 1FTD ending price is 4009.25. Cessation of 1TFD creates scope for recapturing the 50d MA(+1.77%). Conversely, loss of WVAL 3895.25 (-1.31%) risks backtesting the 2023 VAL 3868.25 (-2%).

4t TPO ETH v RTH (W9 → W11) NEUTRAL - The GEX regime remains negative at the margin below 3997.50 (+1.28%). The WHI coincided with prior week structural repair targets, which in conjunction with an ETH print qualifies it as weak. Conversely, the WLO is also weak despite notable RTH excess. In other words, both sides last week’s range are likely to be taken out eventually. A prominent HVN developed on Friday, indicative of (buying) absorption. The resolution of Friday’s Inside Day (balance) will set the early tone, but a durable move is unlikely before the Fed rate decision.

Bull v Bear

This Week (30d ATM 22.11% v21.56% p)
Bulls will seek to establish acceptance above the weak WHI 4009.25 (+1.58%). Upside: Recapture 50d MA 4017.00 (+1.77%); FEB AWVAP 4031.25 (+2.13%). MAR HI 4082.50 (+3.43%) and 4100 (+3.88%) are marginally above +1σ (W) 4068 +3.08%.
Bears will seek to recapture the 200d MA and offer below the poor PLO 3932.50 (-0.37%). Downside: WVAL 3895.25 (-1.31%); 2023 VAL 3868.25 (-2%); WLO 3839.25 (-2.73%); are within -1σ (W) 3833.00 -2.89%. YTD LO 3814.50 (-3.36%) is within -2σ (W) 3720 -5.75%.

Last Week (3947.00 JUN23 +1.27%)
Bulls will seek to re-establish acceptance back into the prior week range > WLO.1 3925.00 (+0.71%). Upside: Recapture 200d MA 3948.00 (+1.3%); OCT HI 3955.75 (+1.49%); WVPOC 3989.75 (+2.37%); 4000 (+2.63%) are within +1σ (W) 4016 +3.04%.
Bears will seek to extend the downside and establish price acceptance < WLO 3881 (-0.42%). Downside: < 20% Correction Level 3847.00 (-1.3%); OCT Breakout 3820 (-1.99%); YTD LO 3814.50 (-2.13%); DEC LO 3788.50 (-2.8%) are within -1σ (W) 3786.00 -2.80%.

Indicators

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Markets

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
Current Year Performance	⚪️ Normal	🔵	2.68	1.23	117.89	10	-10
Average of All Years	⚫️ Index (N/A)	🔴	-0.42	-0.41	-2.44	0	0
Intermediate Term Optimism Index	⚪️ Normal	🔴	37	45	-17.78	65	35
CRB Optix	⚪️ Normal	🔴	46	47	-2.13	60	40
Bond Optix	⚪️ Normal	🔵	43	39	10.26	70	40
HYG Optix	🟢 Pessimism	🔴	18.41	25.63	-28.17	80	20
US Dollar Optix	⚪️ Normal	🔴	46	50	-8	60	40
BBB - AAA Corporate Bond Spread	⚫️ Index (N/A)	🔵	1.03	0.92	11.96	0.1	0.5
Crude Oil Optix	⚪️ Normal	🔴	31	40	-22.5	60	30
Gold Optix	⚪️ Normal	🔵	51	46	10.87	70	30

Seasonality Average v Current Year Performance

Intermediate Term OPTIX v CRB OPTIX

US Dollar v TED 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
Equity Put/Call Ratio De-Trended	⚪️ Normal	🔴	-0.02	0	-Infinity	-0.15	0.15
VIX Put/Call Ratio	⚪️ Normal	🔵	0.55	0.42	30.95	0.35	0.75
Hedge Fund Exp - Equities	⚪️ Normal	🔵	0.08	-0.002	4100	0.2	0
Hedge Fund Exp - Dollar	🔴 Optimism	🔵	0.55	-0.06	1016.67	0.3	-0.3

VIX Put/Call Ratio v Equity Put/Call Ratio

Hedge Fund Exposure - Equities v Dollar

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Sentiment

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
VIX Sentiment	🟢 Pessimism	🔵	3.39	3.11	9	2.75	3.25
Risk Appetite Index	⚪️ Normal	🔴	0.23	0.94	-75.53	0.8	0.2
MOVE Index	🟢 Pessimism	🔵	180.11	140.06	28.59	60	100
2y / 10y Yield Curve	⚫️ Index (N/A)	🔵	-41.12	-89.38	53.99	0	0

VIX Sentiment v CSFB Fear Barometer

MOVE Index v 2/10 Yield Curve

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Volatility

Name	Excess	UpDn	Last	Prior	% CHG	XS Optimism	XS Pessimism
VIX Term Structure	⚪️ Normal	🔴	0.93	0.98	-5.1	0.8	1
Component Correlation	🟢 Pessimism	⚪️	0.58	0.58	0	0.35	0.55
Gamma Exposure (x000)	🟢 Pessimism	🔵	500,668	-1,476,790	50100	4,000,000	1,000,000
Credit Default Swaps	⚫️ Index (N/A)	🔵	529.69	498.11	6.34	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)	🟢 Pessimism	🔵	20.68	16.53	25.11	70	30
SPY Breadth (% > 200d MA)	⚪️ Normal	🔴	39.12	44.2	-11.49	70	30
NYSE TRIN	⚪️ Normal	⚪️	1.29	1.29	0	0.5	2
NYSE Advance Decline	⚫️ Index (N/A)	🔴	675,708	677,828	-0.3	0	0

SPY Breadth % > 50d & 200d MA

NYSE TRIN v Advance/Decline Line

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Sources

Narratives - Heisenberg Report & DataTrek Research
Week Ahead - Trading Economics
Earnings - FactSet & Trinity Asset Management
Options - tradingvolatility.net
Futures - CME Group QuikStrike
Indicators - Sundial Capital Research