Week of Jan 28 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

It now appears that the bulk of the heavy lifting has been accomplished and the next logical shift will be to move away from the extremes of restrictive before something breaks in the real economy. We see no indications on the immediate macro horizon that would suggest the US is at risk of reaching such an inflection point anytime soon but we’re reminded how quickly and sharply downturns tend to occur — Ian Lyngen and Ben Jeffery, BMO

The 22-23 QT era is over and central bank liquidity is flipping back to Wall Street positive in 2024. Global central bank liquidity surged from $6 trillion in 2008 to $29 trillion in February of 2022 before falling by $5 trillion through October of last year, has since risen $300 billion on higher Chinese FX reserves - Bank of America

A massive $11.9 billion inflow went to Chinese stocks, presumably on bets that the Party is poised to engineer a rally. Recall short Chinese equities were identified as the second-most crowded trade in the January - so Chinese stocks are now the biggest contrarian long trade on the planet - Bank of America

A push back to a world of 2.5% inflation or below sees the negative bond-stock correlation regime develop. But equity vol can spike if inflation moves too low; the sweet spot is the 2% to 3% bucket. Moving below target inflation risks transitioning into a higher vol space based on our VIX regime backtests - Nomura

Week Ahead

The upcoming week in the US is packed with pivotal events, including the Federal Reserve's initial policy meeting for the year, as well as critical data such as the US jobs report, ISM Manufacturing PMI, and JOLTs job openings. The Federal Reserve is expected to keep interest rates at a 23-year peak, and investors will watch for signals about the timing of the bank's rate cuts this year.

In terms of economic data, it's predicted that non-farm payrolls increased by 162K in January, down from a 216K rise the previous month. The unemployment rate is expected to stay at 3.7% for the second straight period, and monthly wage growth is projected to slow to 0.3% from 0.4%.

The ISM PMI is likely to show ongoing contraction in the manufacturing sector at the beginning of the year. Investors will also monitor the ADP employment change, Q4 labour productivity and employment costs, factory orders, and regional industry indexes such as the Chicago PMI and Dallas Fed Manufacturing Index.

Earnings season will continue to make news, with reports expected from prominent companies including Apple, Amazon, Alphabet, Microsoft, Meta, Advanced Micro Devices, Automatic Data Processing, Boeing, Chevron, Exxon Mobil, Mastercard, Merck & Co, Pfizer, General Motors, Novo Nordisk, and Starbucks Corp. (Source: Trading Economics)

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Calendar (UTC-4)

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Macro Dashboard

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	242.61	242.92	243.98	January 1, 2024
Forward 4-qtr PE	🔵	20.2	19.9	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.96	5.02	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	10.71	10.87	-0.16	-1.47%
SPX GEX Flip	🔵	4,837.5	4,772.5	65	1.36%
SPX Skew Adjusted GEX	🔴	-3,044,788,701	-1,728,307,087	-1,316,481,614	-76.17%
Equity Put/Call Ratio (CBOE)	🔵	0.66	0.59	0.07	11.86%
VIX Put/Call Ratio (CBOE)	🔴	0.21	0.37	-0.16	-43.24%
SPX/W Put/Call Ratio (CBOE)	🔵	1.34	1.27	0.07	5.51%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

March E-mini S&P 500 futures settled at 4916.25 Friday, lower by 7.00, in lower trade across the board. Overall, a light 1,372,592 contracts changed hands, with 1,363,612 traded in March. Across all maturities, open interest decreased 1,084, or 0.0475%, to end the session with 2,279,516 outstanding. The March maturity lost 0.20% (1,084) to finish at 2,246,478.

Option trading centered around the Jan E5A 5075 calls with 6,751 done and the Jan EW 4000 puts with volume of 69,048. In March options, the most actively traded call was the 100 strike with 1,572 changing hands, and the 4900 put leads with volume of 2,082. Options with the largest open interest are the Feb EW3 100 call with 21,516, and the Jan EW 4000 put with 70,713.

Implied Volatility settled moderately down with the 30-day at-the-money losing 0.17%, to finish at 10.59%. Losing 0.62% to a one week low, historical volatility (as measured by the 30-day) closed the day at 9.70%.

Higher TF (W → D) BULLISH - Price acceptance at new highs, signified by a developing ascending HVN, provides the most reliable confirmation of a breakout. WLO 4872.50 (-0.89%) was an exacting back and fill of the (uppermost) December LVN, coinciding with a rejection from the prior week’s range resulting in a new HL. All timeframes (quarterly, monthly, weekly, daily) remain 1TFU synchronized. The question now: does price continue to pull value higher, or does it mean revert back into the monthly value area. Steadily declining volume coming into a week stacked with risk events, including the first FOMC meeting of 2024, begs consideration of a “buy the rumor, sell the news” inflection?

Lower TF (3H → M30) BULLISH - Stair-stepping price action with tempered vol is customary in trending markets. The higher timeframe breakout has advanced and become responsive in between technical expansion levels, suggesting shorter timeframe control of price action. Notice that multiple attempts (Monday → Tuesday) to dislodge support at last Friday’s breakout bar → WHI.1 4874.25 (-0.85%) were absorbed. A substantive reversal that recaptures the prior week’s range will signal a shorter timeframe change of condition and likely cessation of the vol-tempering positive GEX regime. That said, shorter timeframe buyers will likely remain responsive on pullbacks, notwithstanding Friday’s lackluster close,

Bull v Bear

This Week (30d ATM IV 10.59% v 30d HV 9.70%)
Bulls will seek to extend WTF 1TFU and establish price acceptance above WHI 4934.25. Upside: 4977 Put Wall (+1.24%) is within +1σ (W) 4994 (+1.58%).
Bears will seek to recapture DTF 1TFD and break below WVAL 4883 on a closing basis. Downside: GEX Flip 4864.50 (-1.05%) is within -1σ (W) 4841 (-1.53%).

Last Week (4916.25 MAR24 +0.95%)
Bulls will seek to extend WTF 1TFU and establish price acceptance above WHI 4874.25. Upside: 4900.00 (+0.63%) is within +1σ (W) 4947 (+1.59%).
~~Bears will seek to recapture DTF 1TFD on a closing basis, coinciding with closure < WMID 4810.25. Downside: GEX Flip 4800 (-1.43%) is~~ ~~within~~ ~~-1σ (W) 4795 (-1.53%).~~

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