Week of May 07 2023

Market Wrap

EOW 18 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 2.4% 4037.1 → 4235.6)

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

Narratives

It may get uncomfortable to go back to the short the 0DTE -2% OTM SPX put to fund a 0DTE SPX call playbook as the banks dynamic feels increasingly unstable again. The -2% / -1% 0DTE put sellers have been arresting nascent selloffs in recent months during this rally. That flow, at the same time, increases the risk that the -1.5% move eventually gets blown through and turns into a -4% / -5% day — Charlie McElligott, Nomura

A credit event normally means a panic Fed ease, but inflation is too high and unemployment too low. CPI trending at 0.3% MoM on headline and 0.4% for core delivers inflation come November: ~4% YoY on headline and 5% on core - BofA

The average EPS decline (during recessions) is 24% peak-to-trough. There’s one place where earnings are trailing off: Small-caps have priced in a recession. EPS is already -13% from the peak, versus flat for the S&P 500 - BofA

When pauses have occurred against the backdrop of tight labor markets, the Fed has rarely eased in the subsequent six months. The most common outcome has been an on-hold Fed - Goldman Sachs

Week Ahead

In the United States, the Bureau of Labor Statistics consumer and producer price indices will be closely watched for clues about inflation trends. Estimates suggest that headline inflation rose by 0.4% in April, keeping the annual rate at 5%. Core inflation is forecasted to increase by 0.4%, resulting in the annual rate easing to 5.5% from 5.6%. Meanwhile, producer prices are projected to grow 0.3% monthly, which could bring the yearly inflation down to 2.5% from 2.7%. Additionally, the market will be keeping an eye on the University of Michigan's preliminary reading of consumer sentiment and inflation expectations for May. Also in the spotlight will be exports and import prices. Lastly, the earnings season is drawing to a close, with quarterly results from PayPal, Airbnb, Walt Disney, and Berkshire Hathaway - TradingEconomics

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Calendar (UTC-4)

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Major Economies

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 12-mo Estimate	🔵	226.28	225.91	228.39	January 1, 2023
Forward 12-mo PE	🔵	18.7	18.5	17	January 1, 2023
Nominal Earnings Yield	🔵	5.47	5.42	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	14.2	13.1	1.1	8.4%
SPX GEX Flip	⚪️	4,122.5	4,122.5	0	0%
SPX Skew Adjusted GEX	🔴	5,235,353,531	14,540,911,491	-9,305,557,960	-64%
Equity Put/Call Ratio (CBOE)	🔴	0.69	0.76	-0.07	-9.21%
VIX Put/Call Ratio (CBOE)	🔵	0.57	0.37	0.2	54.05%
SPX/W Put/Call Ratio (CBOE)	🔵	1.29	1.27	0.02	1.56%
OEX Put/Call Ratio (CBOE)	🔴	0.54	2.57	-2.03	-78.99%

SPX Net Skew-Adjusted Gamma by Strike - @tradevolatility

SPX Skew-Adjusted GEX Trend - @tradevolatility

SPX Implied Volatility - @tradevolatility

SPX Put/Call OI - @tradevolatility

Futures

E-mini S&P 500 futures were higher Friday with the June contract finishing the session at 4150.25, up 74.50, or 1.83%. Overall the session saw 1,550,644 contracts done, with June volume coming in at 1,545,895. Combined open interest rose 7,738 (0.34%) to end the session with 2,283,627 outstanding. The June maturity increased 0.28%, or 7,738, to finish at 2,251,932.

Option volumes were greatest for the May EW2 4500 call (15,064) and the May E2B 3475 put (39,050). Highest volumes in June option trading were seen in the 4150 calls (3,562) and the 4000 puts (5,141). Options with the greatest open interest are the June EW3 100 call with 31,702, and the June 3800 put with 44,030.

Implied Volatility was sharply down with the 30-day at-the-money dropping by 3.26%, to finish the session at 14.04%. Up 1.04% to a one week high, historical volatility (as measured by the 30-day) ended at 13.33%.

Longer TF (W → D) NEUTRAL - We continue to observe multi-quarter consolidation between the December 3788.50 LO and 2023 (February) 4208.50 HI. Our bias leans bullish based on continued price acceptance within Q2 value and two (consecutive) rejections of the Q1 VAH. However, sellers defended the YTD high of 4208.50 (+1.4%), resulting in a bearish change of character. This was seen in the Outside Week and cessation of MTF 1TFU, on a non-closing basis before short covering retraced the weekly VA. Meanwhile, the above highlighted trading range remains inside a long-term structure between the 2022 LO 3502.00 and the Q3 2022 HI 4327.50, indicative of balance.

Shorter TF (3H ETH → M30 RTH) NEUTRAL - Short covering can weaken markets because of the tendency to remove natural buyers; this phenomena was aptly illustrated this week. The LL 4074.50 (base of W17 rally) turned weak by failing to clear the YTD HI 4208.50, and was subsequently taken out during a multi-day liquidation. When this week’s puts monetized, the reversion to mean once again came into play Thursday → Friday. The shorter TF structure sits within a 2.45% range between the weak WLO (~50d MA) 4062.25 → HH 4167.00. The opening internal range is defined between Friday’s pullback HL of 4127.25 (-0.55%) and Friday’s weak HH of 4163.25 (+0.31%).

Bull v Bear

This Week (30d ATM 14.04% v 12.87% p)
Bulls will seek to break Thursday’s HI 4167.00 and ideally recapture WTF 1TFU > 4206.25. Upside: > YTD HI 4208.50 (+1.4%); HH 4217.25 (+1.61%) are within +1σ (W) 4235.50 (+2.05%).
Bears will seek to recapture DTF 1TFD < 4111.50 (-0.93%). Downside: < 4100(-1.21%); WVAL 4082 (-1.64%) are within -1σ (W) 4068 (-1.98%). 50d MA 4060 (-2.17%) retest just below.

Last Week (4150.25 JUN23 -0.91%)
Bulls will seek to recapture WTF 1TFU > WHI.1 4198.25 and cause a break of structure and new YTD HI > 4208.50 (+0.48%). Upside: 4250 (1.47%) marginally within +1σ (W) 4267 (+1.87%).
Bears will seek to recapture DTF 1TFD < 4143.25 (-1.07%). Downside: 2023 VAH 4020 (-1.64%); WVAL 4105 (-1.99%); WLO~50d MA 4068.75 (-2.05%) are within -2σ (W) 4037 (-2.8%).

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Sources