Week of Apr 23 2023

Market Wrap

EOW 16 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 2.3% 4038.4 → 4228.6)

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

Narratives

In addition to our view that earnings are likely to disappoint beyond Q1, we are also still dealing with an inflation problem despite some softer than expected inflation data. The Fed’s favorite measure of core services inflation remains too high for its liking. In some ways, it feels like our original thesis could be back in play with the Fed forced to stay with its tightening path into a slowing economy and earnings. Our economists are now looking for Q2 GDP growth to be below zero with little improvement in Q3. This is consistent with our earnings forecast which assumes most of the downside being driven by lower margins, especially if revenues begin to disappoint from here. Such low real GDP growth increases that risk — Mike Wilson, Morgan Stanley

Corporate profitability isn’t receding commensurate with the typical path. From this vantage point, the subdued level of equity volatility should not seem surprising. Looking ahead, margins should come under pressure, but we expect this process to take some time - SocGen

Domestic policies in the 2020s driven by solving inequality (fiscal excess, regulation, redistribution, re-shoring) and international policies driven by isolationism (war, protectionism, trade barriers and capital flows), are inflation themes favoring cash and commodities relative to stocks and bonds - BofA

The transmission of tighter monetary policy has yet to kick into gear. Corporations were able to issue newer debt at lower costs, termed out debt to longer maturities and as a result, sensitivity to changes in interest rates is likely to have been dampened in the near-term (for these participants) - SocGen

Week Ahead

Next week, the US earnings season will kick into higher gear as several big names, including Microsoft, Alphabet, Facebook, Amazon, Coca-Cola, Visa, Boeing, Mastercard, and Exxon Mobil, are set to report. It will also be a busy week in terms of macro data, with GDP growth and the PCE price index taking center stage. The US economy is estimated to have grown at an annualized rate of 2.0% in the first quarter of 2023, slowing from a 2.6% expansion in the fourth quarter of 2022. The Fed's preferred inflation gauge is expected to have cooled in March, but core PCE inflation likely rose 0.4% over the previous month. At the same time, the Commerce Department will also release March durable goods orders, which are likely to have rebounded by 0.9% over the previous month. Additionally, investors will pay close attention to personal spending and income data, which are projected to show that higher interest rates continued to dent demand, the final reading for the University of Michigan's consumer sentiment, and inflation expectations. Finally, building permits and new home sales will offer further clues into the real estate market - TradingEconomics

‣

Calendar (UTC-4)

‣

Major Economies

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 12-mo Estimate	🔴	225.86	226.29	228.39	January 1, 2023
Forward 12-mo PE	🔵	18.3	18.1	17	January 1, 2023
Nominal Earnings Yield	🔴	5.46	5.49	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	13.62	14.6	-0.98	-6.7%
SPX GEX Flip	🔵	4,127.5	4,102.5	25	0.61%
SPX Skew Adjusted GEX	🔴	2,517,420,717	6,917,139,283	-4,399,718,566	-63.61%
Equity Put/Call Ratio (CBOE)	🔴	0.61	0.65	-0.04	-6.15%
VIX Put/Call Ratio (CBOE)	🔴	0.26	0.41	-0.15	-36.59%
SPX/W Put/Call Ratio (CBOE)	🔵	1.41	1.35	0.06	4.44%
OEX Put/Call Ratio (CBOE)	🔴	0.3	1.07	-0.77	-71.96%

SPX Net Skew-Adjusted Gamma by Strike - @tradevolatility

SPX Skew-Adjusted GEX Trend - @tradevolatility

SPX Implied Volatility - @tradevolatility

SPX Put/Call OI - @tradevolatility

Futures

June E-mini S&P 500 futures settled at 4156.75 Friday, up by 4.25, in slightly higher trade across the board. Across all maturities, the session saw 1,646,962 contracts done, with June volume coming in at 1,645,161. Combined open interest dropped 6,094, or 0.27%, to 2,252,367. June shed 6,521 (0.29%), finishing at 2,228,925.

Option volumes were greatest for the April E4A 4245 call (5,678) and the April EW 4100 put (21,175). In June options, the most actively traded call was the 4350 strike with 836 done, and the 4000 put leads with volume of 3,349. Option open interest is highest for the June EW3 100 calls at 28,837, and the April E4A 4100 puts at 42,995.

E-mini S&P 500 implied volatility ended the day down as the 30-day at-the-money fell 0.79% to close at 13.86%. Historical volatility (30-day) ended the day at 13.18%, dropping by 0.0636%, to a twelve year low. Volatility finished the day lower with the 30-day at-the-money off by 0.62%, to end the session at a one month low of 14.78%. The 30-day historical volatility ended up by 0.0224% to 16.04%.

Larger TF (COVID LO → Present) NEUTRAL - W16 featured the lowest range of 2023 despite briefly testing the 4200 (→ YTD HI 4208.50) sell zone before fading into a neutral closing position. Price action and positioning data suggests that LTF buyers are absorbing shorter timeframe sellers, despite moderating volume, breadth, and liquidity. But should volatility resurface, sellers could regain control below the Q2 VAL 4125 (-0.77%), which would create scope for backing and filling the "air pocket" to ~4000 (-3.77% and within -2σ of the implied weekly range).

Intermediate TF (2022 → Present) NEUTRAL - While many are declaring a new bull market, we see consolidation that remains confined within the highlighted multi-month TR, further tempered by a now broken trend channel. Price action continues to be sympathetic to the USD (Pane 5), and we suspect this will remain in effect until consensus on the 2023 rate path is reached. Nevertheless, the ITF remains constructive above the March HI of 4142.50 (-0.34%), and the now concluded OpEx will likely enable better ease of movement (above or below the April range).

Short TF (2023 → Present) NEUTRAL - The March Demand Line has been broken on a closing basis, with a series of (3) lower daily highs and lows. This is juxtaposed by five consecutive weeks of 1TFU and a supportive monthly VWAP (cyan). Bulls may interpret this action as a “flagging” pattern, while bears may view it as a topping formation. Our bias is neutral until a directional move emerges from last week’s limited range (4135.25 → 4198.25) with a lean towards taking out the (weak) WHI, which creates scope to challenge the YTD HI 4208.50 (+1.24%) and within +1σ (W) implied range.

M30 RTH (March → Present) BULLISH - The multi-week profiles highlighted above show trading ranges of interest isolated to regular trading hours. W14 → W16 has confirmed price acceptance above W12 → W13, but receded back into its value area. The question is whether this reversion constitutes a failed breakout: Friday's responsive bid off the (structurally weak) WLO and recovery of the POC suggests reversion to the mean. The higher timeframe swing structure remains bullish above 4113.50 (-1.04%).

Bull v Bear

This Week (30d ATM 13.86% v 14.78% p)
Bulls will seek to recapture and ideally gain price acceptance > WHI ~4200 (+1.04%). Upside: YTD HI 4208.50 (+1.24%); 4250 (2.24%) marginally above +1σ (W) 4239 (+1.98%).
Bears will seek to extend DTF 1TFD < WLO 4135.25 (-0.52%). Downside: JAN HI 4109.25 (-1.14%); WLO.1 4098.75 (-1.4%); 50d MA 4069 (-2.11%) marginally below -1σ (W) 4076 (-1.94%).

Last Week (4156.75 JUN23 -0.17%)
Bulls will seek to recapture and ideally gain price acceptance > WHI 4200 (+0.87%). Upside: YTD HI 4208.50 (+1.07%); GEX Call Wall 4227 (1.52%) are within +1σ (W) 4249 (+2.05%).
Bears will seek to trigger cessation of Daily 1TFU below Friday’s RTH LO 4124.50 (-0.94%). Downside: GEX Flip 4109 (-1.31%); WLO.1 4096.50 (-1.62%) are within -1σ (W) 4082 (-1.96%).

Indicators

‣

Markets

‣

Positioning

‣

Sentiment

‣

Volatility

‣

Breadth

‣

Disclaimer

‣

Sources