Week of Jan 08 2023

Market Wrap

EOW 01 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 3.4% 3762.6 → 4027.4)

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

Narratives

Three identifiable downside risks more than outweigh the prospective boon from China’s re-opening: (1) Weak consumer demand would limit firms’ pricing power and pressure profit margins; (2) Store traffic for the 2022 holiday season remained muted relative to 2019 levels and early sales results point to soft consumer spending; (3) Between a 15% minimum tax on corporate book income, a 1% excise tax on buybacks and the phasing out of capex deductions included in previous legislation, tax provisions might lower EPS by 3%. But the biggest risk in 2023 is a potential recession, in which case S&P 500 EPS could fall by 11% to $200 and the index could trough at 3150; concentrated sector weakness could lead to larger EPS declines than our (well below consensus ~35%) forecast - David Kostin, Goldman Sachs

Market participants would be ill-advised to expect a countercyclical fiscal response to a prospective recession. Divided control would make it harder for Congress to respond to a downturn, and any recession that might occur would likely be far milder than the downturns that led to substantial fiscal responses in 2008-09 and 2020-21. Fiscal policy changes are unlikely in the new year - Goldman Sachs

In our view, earnings growth will be flat for the year, and profit margins will fall by 50bps to pre-pandemic levels. More than 20% of S&P 500 market cap has pre-announced, the highest share since Q1 2020. The three-month trend of S&P 500 FY2 EPS revision sentiment stands at -31%, the most negative reading outside of the 2008 and 2020 recessions - Goldman Sachs

December payrolls was amenable to a Goldilocks interpretation to account for the fact that the labor market is still too hot to be consistent with price stability (if your definition of price stability is 2% inflation). There’s nothing in the release that would imply it’s anything other than a strong jobs report with moderating wage pressure. We believe the 25bps versus 50bps rate hike debate now comes down to next week’s CPI print - BMO

Week Ahead

The December inflation report is highly anticipated in the US. Headline inflation is likely to be flat month-on-month, resulting in the annual rate of inflation slowing to 6.6% from 7.1%, which could be the lowest reading since October 2021. Core consumer prices likely rose 0.3% over the previous month, bringing the annual rate to 5.7%, the lowest level in a year. Next week also features the University of Michigan's consumer sentiment and import and export prices. Investors will also keep an eye on a speech from Federal Reserve Chair Jerome Powell at the Sveriges Riksbank International Symposium on Central Bank Independence. Also, the earnings season kicks off on Friday, with reports from Bank of America, BlackRock, Citigroup, JPMorgan Chase, and Wells Fargo, among others.Elsewhere in the Americas, Brazil and Mexico will release inflation rates for December - TradingEconomics

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Economic (UTC-5)

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Earnings

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 12-mo Estimate	🔵	228.38	222.91	222.91	December 31, 2022
Forward 12-mo PE	🔴	17	17.22	17.22	December 31, 2022
Nominal Earnings Yield	🔵	5.86	5.81	5.81	December 31, 2022

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
Implied Volatility	⚪️	20.1	20.5	-0.4	-1.95%
Call Skew	🔵	-2.1	-2.9	0.8	27.58%
GEX Flip	⚪️	3,892.5	3,897.5	-5	-0.13%
Total GEX	🔵	913,902,546	-10,003,463,670	10,917,366,216	109.13%
Skew Adjusted GEX	🔵	179,399,070	-1,963,679,919	2,143,078,989	109.13%
Put/Call Ratio	⚪️	1.87	1.89	-0.02	-1.06%

Gamma by Strike - @tradevolatility

Gamma Change - @tradevolatility

SPX Skew - @tradevolatility

Open Interest for SPX - @tradevolatility

Futures

E-mini S&P 500 futures were higher Friday with the March contract finishing the session at a one week high of 3915.50, up 86.50, or 2.26%. Overall, 2,028,210 contracts were traded, with 2,026,154 done in March. Combined open interest gained 2,670 (0.13%) to 2,021,616. March added 2,361, or 0.12%, finishing at 2,008,718.

The Jan E2B 3300 put saw the most traded with 76,000 contracts done. For Jan options, the 4000 calls were the most active with 4,225 done, and the high volume put was the 3200 strike with 4,540 contracts changing hands. Calls with the most open interest are the Jan EW3 100 strike (22,947), and for the puts are the Jan E2B 3300 strike (76,012).

Implied Volatility ended the session moderately lower with the 30-day at-the-money down 1.80%, to finish the day at a one week low of 19.76%. Up by 1.19% to a one week high, historical volatility (as measured by the 30-day) ended the day at 20.24%.

Larger TF (PRE-COVID HI → Present) BEARISH - 2023 began with the third consecutive test of (and rejection below) the increasingly evident support of the 2020 Demand Line - now crossing above Q4 VAL. A recapture of the OCT HI 3959.50 (+1.61%) will create scope for continuing the sweep up scenario to Q4 VAH 4090 (within +2σ expected), and further confirm the plausible bull flag formation on the ITF. Both YTF and QTF remain synchronized 1TFD.

Intermediate TF (2022 → Present ) NEUTRAL - We continue to balance within December VA, but notably below the DEC VPOC which also coincides with the 2022 VPOC 3992 (+1.95%). Our ITF bias remains neutral whilst price action remains confined within the monthly value area. The 1TFU MTF configuration has been maintained, but is more vulnerable to the downside (DEC LO 3788.50 -3.24% v HI 4141.50 +5.77%).

Short TF (Trailing 8-weeks) BULLISH - W1-23 featured a breakout from the trailing 3-week balance, and closed precisely at the 50d MA. This resulted in a welcomed reversion to a (modest) positive GEX regime as well as cessation of 1TFD on both the WTF and DTF. WHI 3928.75 (+0.34%) coincided with an exact retest of the W49 VPOC, above which odds for retesting the OCT HI become increasingly favorable.

TPO ETH v RTH (THU → FRI) BULLISH - The most favorable observation is having closed > WHI.2 with confirming value (HVN). Backtesting 3900 will clear-up weak J-period singles and ideally fill the LVN structure to form a stronger base for continuation. Conversely, offering below Friday’s VA would signal a potential breakout failure. The strong position of close favors continuation - tempered with overbought momentum and caution leading into Thursday’s (DEC) CPI release.

Bull v Bear

This Week (30d ATM 19.76% v 19.96% p)
Bulls will seek to maintain bid above 3900, and ideally above the 50d MA 3915. Upside: OCT HI 3959.50 (+1.12%); 200d MA ~4000 (+2.16%) are within +1σ (W); the Dec 14 2022 Open Gap 4012.00 (+2.46%) is marginally above.
Bears will seek to offer below 3900, and ideally create cause for a breakout failure < 3874 WVAH (-1.06%). Downside: WVAL 3832.25 (-2.13%); WLO 3814.15 (-2.58%) are within -1σ (W); POOR LO WLO.1 3804.50 (-2.83%) is marginally below.

Last Week (3915.50 MAR23 +1.41%)
Bulls will seek to maintain bid above Friday’s closing spike and target the (pair of) weak WHI 3900.50 (+1.02%) → WHI.1 (+1.5%). Upside: 50d MA and GEX Flip Point 3885.75 (+0.64%); OCT HI 3955.75 are both within +1σ (W).
Bears will seek to offer below (the poor and weak) WLO 3804.50 (-1.45%) → WLO.1 3788.50 (-1.88%), respectively. Downside: JUL LO 3772.00 (-2.31%); -20% ATH 3748.00 (-2.93%); NOV LO 3735.75 (-3.24%) are within -2σ (W).

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