Week of Jan 19 2025

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Outlook

Market sentiment appears to be at an inflection point, with several historic developments converging. The bond market has reached a potentially significant milestone, with the first negative 10-year rolling return on US Treasuries in over 90 years, as highlighted by BofA's Hartnett. This comes amid what appears to be a tactical shift in positioning, triggered by better-than-expected inflation data that forced a rethink of the "High for Longer" narrative that had dominated market thinking. Large-cap corporate America appears well-insulated from higher rates, with Goldman highlighting that 94% of S&P 500 non-financials' $6.2 trillion debt is fixed-rate, with 51% maturing after 2030. However, this masks significant vulnerability among smaller companies and lower-income households exposed to variable rates. The economy continues to show resilience, with Q4 GDP tracking at 3.0% and strong retail sales, though this strength creates complications for monetary policy expectations. The technical setup appears primed for a potential reversal, particularly in rates markets. Extreme bearish positioning is evident, with CTA trend-following strategies at just 11th percentile net short in G10 bonds and 17th percentile in global STIRS - the most aggressive selling since early 2021. The equity market structure shows signs of transitioning from defensive to constructive, with volatility sellers returning and increased demand for upside exposure across major indices. Seasonal patterns indicate possible consolidation through January 22nd before potentially moving higher into mid-February. Key technical levels being watched include the S&P 500's recent trading range support and the 10-year Treasury yield's behavior around 4.75-5.00%, while the NASDAQ-100's 20,880 level represents a significant CTA trigger point that could drive systematic flows. The primary tail risks remain clearly defined: The left tail centers on the possibility that the Fed's early pivot to rate cuts could leave them constrained in responding to persistent inflation, particularly given potential Trump 2.0 policy impacts regarding tariffs and their inflationary implications. The right tail risk involves a "meltup" scenario where strong economic growth combines with substantial sideline cash and extreme short positioning to drive a powerful rally. This tension is reflected in positioning, with the largest macro ETF shorting since 2021 occurring alongside record money market fund inflows of $143.3 billion. Several important catalysts are converging in the near term. The corporate buyback blackout period ends January 24th, affecting 45% of S&P 500 market cap, while Q4 earnings season continues in full swing. Market participants will be closely monitoring the US Conference Board Leading Index and global flash PMIs, particularly January data for major economies. Central bank decisions from the PBoC and BoJ, along with key corporate earnings from Netflix, J&J, and Texas Instruments, will provide crucial insights into global economic health.

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Calendar (UTC-4)

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Macro Dashboard

Forward Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	273.18	273.91	263.39	January 1, 2025
Forward 4-qtr PE	⚪️	21.7	21.7	22.7	January 1, 2025
Nominal Earnings Yield	⚪️	4.61	4.61	4.41	January 1, 2025

Volatility & Correlations

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	18.16	15.45	2.71	17.54%
SPX GEX Flip	🔵	6,005.93	5,972.5	33.43	0.56%
SPX Skew Adjusted GEX	🔵	2,299,345,073	-12,568,757,852	14,868,102,925	118.29%
Equity Put/Call Ratio	🔴	0.43	0.7	-0.27	-38.57%
SPX/SPXW Put/Call Ratio	🔴	1.28	1.46	-0.18	-12.33%
VIX Put/Call Ratio	🔴	0.32	0.5	-0.18	-36%

Cross-Asset Volatility — CBOE

Cross-Asset Correlation — CBOE

S&P 500 Futures

March E-mini S&P 500 futures settled at a one week high of 6033.50. Overall, 1,327,912 in futures contracts were traded, and open interest decreased by -17,666 or -0.8%, to 2,018,234.

Higher TF (W → D) NEUTRAL - The most consequential signal in price action is a breakout failure, which has triggered reversals in consecutive weeks. While breakout failures amplify the pull of the dominant channel against which they occur, (bear) channels facilitate pullbacks on the higher timeframe and—counterintuitively—function as bull flags that typically resolve with an upside breakout, signaling higher timeframe trend resumption. The key question now: Will bulls build acceptance above the converging 50-day MA, thereby signaling a measured move setup based on the height of the flag, or will the rally once again be sold? Notably, last week's breakout failure printed above the Q4 2024 pullback low of 5797.75 (-3.91%)—thus indicating a probable higher low.

Lower TF (3H → M30) NEUTRAL - Last week's strong reversal triggered substantial short covering, as evidenced by the true gaps on Wednesday and Friday, resulting in a trend-confirming double distribution on the weekly volume profile. The key question on the lower timeframe is: Will price acceptance continue above the 6017.50 breakout point and lead to a second-leg up to the measured move target, 6073.25 (+0.66%), or will the breakout be confined to WHI, the measured move's midpoint? If bears recapture and push below 6017.50, the opposite end of the flag becomes relevant, potentially pulled lower by the coinciding HVN and positive GEX flip level just below 6000. Our neutral bias coming into next week is based on the rally having completed three legs up.

ATM IV30 12.72% v HV 14.52% IV-HV -1.80%
Bulls will seek a second leg up above WHI targeting a measured move above the 6017.50 breakout. Upside: MM 6073.25 and the 6107.50 → 5866 TR High are within +1σ (W) 6148 (+1.90%).
Bears will seek to cause a breakout failure below 6017.50 and ideally offer back below 6000. Downside: 5961.75, protecting a large air pocket below, is within -1σ (W) 5923 (-1.83%).

Last Week: 6033.50 MAR25 +2.80%
Bulls will seek to re-establish DTF 1FTU and ideally bid ≥ 5975 on a closing basis. Upside: Recapture of 50d MA 6035 is beyond +1σ (W) 6003.00 (+2.34%).
Bears will seek to confirm a breakout below the multi-week trading range low 5866. Downside: 5745.25 50% of MM target (5624.50) is within -1σ (W) 5735.00 (-2.24%).

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