Week of Mar 26 2023

Market Wrap

EOW 12 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 3.2% 3844.1 → 4098.3)

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

Narratives

The bank ‘profitability crisis’ has become a ‘solvency crisis,’ and will act as a catalyst for a substantial tightening impulse in financial conditions, as the fractional reserve banking system stops working as a transmission mechanism for economic growth. This is especially the case with US regionals, which in this part of the cycle are, at best, going into zombie mode. At worst, regional banks in America are likely to be shrinking balance sheets against a number of structural headwinds, including lower deposits, higher funding costs and wider credit spreads, which all point to margin compression. And then there’s the potential CRE problem. Loan books are stuffed on CRE. Ultimately, it all comes down to one thing in the US context: Less credit creation from a critical source of lending to Main Street — Charlie McElligott, Nomura

Shorts in STIRs are psychologically broken after the stop-out of their lives. Now, in an effort to shake it off, traders are rushing to the other side of the boat evidenced by incessant demand for bets that’d pay off if rates and yields fall and/or the Fed is forced into a dovish pivot - Nomura

Current levels of realized vol for bank shares have only been witnessed during periods of crisis. Notwithstanding the resilience of broad equities, this situation feels as though it could spiral abruptly. Banking isn’t just another sector of the economy; it provides financial intermediation to every sector - Goldman Sachs

Sell the last hike was the correct strategy for stocks in the inflationary ’70s/’80s, and the same is likely to be true this year. The negative feedback loop from higher unemployment to day traders, retail, consumers and corporations is likely to be very pronounced - BofA

Week Ahead

In the US, the banking crisis will dominate the headlines. Michael S. Barr, Vice Chair for Supervision, will testify before the U.S. Senate Committee on Banking, Housing, and Urban Affairs and the U.S. House Financial Services Committee. Investors will also closely watch the PCE and core PCE figures, which are the Federal Reserve's preferred inflation gauge, to assess how price pressures on the economy are evolving. Other data to follow includes private spending and income, the Conference Board consumer confidence, and the latest estimate for GDP growth in Q4. Several housing indicators are also due, such as the S&P/Case Shiller house price index and the FHFA housing index, pending home sales, and regional PMIs, namely the Richmond Fed, Dallas Fed, and Chicago PMI - TradingEconomics

‣

Economic (UTC-5)

‣

Earnings

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 12-mo Estimate	🔴	221.34	221.49	230.43	September 30, 2022
Forward 12-mo PE	🔵	17.9	17.7	15.5	September 30, 2022
Nominal Earnings Yield	🔴	5.57	5.66	6.43	September 30, 2022

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	18.98	22.23	-3.25	-14.62%
SPX GEX Flip	⚪️	3,997.5	3,997.5	0	0%
SPX Skew Adjusted GEX	🔵	-6,091,924,330	-11,571,252,881	5,479,328,551	47.35%
Total Put/Call Ratio (CBOE)	🔵	1.1	0.98	0.12	12.24%
Equity Put/Call Ratio (CBOE)	🔴	0.73	1.18	-0.45	-38.14%
VIX Put/Call Ratio (CBOE)	🔴	0.5	0.55	0.05	-9.09%

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 4001.25 Friday, up 23.25, in higher trade across the board. Across all maturities, volume was 1,946,823, with June seeing 1,944,981 done. Total open interest fell 14,000 (0.65%), with June off 13,948, or 0.65%, to 2,126,345.

Option volumes were largest for the March EW 4050 call (5,682) and the March E4B 3380 put (31,000). Greatest volumes in April option trading were seen in the 4100 calls (2,296) and the 3800 puts (5,801). Calls with the most open interest are the June EW3 100 strike (24,725), and for the puts are the March E4B 3380 strike (31,001).

Implied Volatility finished the day down with the 30-day at-the-money off 0.93%, to settle at 19.22%. Historical volatility (30-day) ended the day at 17.94%, up by 0.0935%.

Larger TF (COVID LO → Present) NEUTRAL - The LTF remains rangebound between 3820 → 4175 (+/- 4.5%), and continues to build cause for an eventual directional move. Week 12 featured cessation of WTF 1TFD (WHI > WHI.1) and backtest of the MAR HI and QVAH 4086 (+2.12%), at which responsive sellers emerged. Weekly price action continues to respect quarterly value areas; and has once again swept the QVA before reverting back to value. Intraday vol remains elevated even as the market remains range bound (thereby trapping vol) and obscuring conventional vol metrics - for now.

Intermediate TF (2022 → Present) NEUTRAL - Despite elevated uncertainty, a balance formation has emerged on the ITF - quite remarkable when contrasted to the bond market (a divergence that will inevitably resolve). Buyers regained control at the margin above the 3978 WVWAP (-0.58%) into Friday’s close - back to 4000 notwithstanding scant directional conviction. The ITF VWAPs (above highlighted) unsurprisingly coincide with the 50d and 200d MAs, a 2% range, respectively. Bullish above, bearish below, and rotational in between; both levels within +/- 1σ (W) expected.

Short TF (2023 → Present) NEUTRAL - The market continues to balance within the March range, and settled just below the YTD Midpoint, 4011.50. The closely observed 200d → 50d MA levels are also coincidental with the Weekly Value Area, thus establishing shorter and intermediate timeframe alignment (and increasing the odds of a more durable move once resolved). The coming week will also mark the EOM and EOQ, and likely rebalancing flows. The path of least resistance appears to be a retest of WVAH/50d MA. We will observe price acceptance vs. rejection at that presumed juncture.

4t TPO ETH v RTH (W11 → W12) NEUTRAL - Friday’s strong position of close (and closing spike formation) increases the odds of upside continuation and cessation of the DTF 1TFD configuration (> 4005.75). GEX has turned modestly positive, but insufficiently so for a durable regime change. Price acceptance back into Wednesday’s VA will be indicative of strength, whereas spike rejection will create cause for backtesting Friday’s VAH. Offering below Friday’s LO opens the gate to single prints carried forward from last Thursday (15th) combined with a subsequent Poor LO on Friday (16th) - downside structural repair targets.

Bull v Bear

This Week (30d ATM 19.22% v22.11% p)
Bulls will seek to maintain bid momentum and ideally establish price acceptance above the 50d MA 4026 (+0.62%). Upside: WHI 4073.75 (+1.81%); MAR HI 4082.50 (+2.03%) and 4100 (+2.47%) are within +1σ (W) 4105.75 (+2.61%).
Bears will seek to absorb and ideally recapture the WVWAP 3978.00 (-0.58%). Downside: Recapture < OCT HI 3955.75 (-1.14%); 200d MA 3942.00 (-1.48%); YTD VAL 3909.00 (-1.36%) are within -1σ (W) 3902 (-2.48%).

Last Week (4001.25 JUN23 +1.37%)
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%.

Indicators

‣

Markets

‣

Positioning

‣

Sentiment

‣

Volatility

‣

Breadth

‣

Disclaimer

‣

Sources