Week of Jun 11 2023

Market Wrap

EOW 23 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 1.8% 4221.6 → 4376.3)

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

Narratives

Our long-term fair value model and survey-based measures of term premia suggest that there is still a large disconnect between bond and equity markets in terms of pricing macroeconomic uncertainty. Bond markets are still pricing in a sustained period of elevated macroeconomic uncertainty, even if there has been some modest decline over the past three months. By contrast, equity markets look priced for perfection with the S&P now above a fair value estimate looking through the rise in macroeconomic volatility since the pandemic. If equity markets were to price in a rise in inflation vol to levels consistent with bond markets appear to price, this would imply around 20% downside from current levels — Nikolaos Panigirtzoglou, JPMorgan

There’s nearly $8 trillion sitting in global money market funds (vs. $5 trillion pre-pandemic). Investors on balance are still bearish macro and markets; and outside of cash are exclusively committed to high-quality cyclicals and tech. Positioning remains the BFF for risk assets - BofA

The better the economy is, the more emboldened the Fed will be. That at the least means higher for longer, which raises the odds of a hard landing, unless you harbor a sanguine view about the US economy’s capacity to tolerate 5-handle Fed funds for a prolonged period of time - BofA

We have raised our year-end target for the benchmark to 4,500 (from 4,000). Although 2023’s rally in US equities remains very narrow (and history suggests sideways churn), the situation is likely to resolve in a catch up as gains broaden beyond mega-cap tech - Goldman Sachs

Week Ahead

The United States is facing an eventful week, with a central focus on the Federal Reserve's announcement on June 14th and updated economic projections from the FOMC. Currently, the market is pricing in a 77% chance that the Fed will maintain its interest rates at their current levels. However, the release of the US inflation rate a day prior may change these projections. The inflation rate is forecasted to fall to 4.1% in May from 4.9% in April, while the core gauge may decelerate to 5.2% from 5.5%. On the other hand, retail sales are expected to fall by 0.1%. Other important reports will cover producer and foreign trade prices, industrial production, the preliminary estimate of Michigan Consumer Sentiment, overall capital flows, business inventories, and the government's monthly budget numbers for May. Regional activity indexes, such as the Philadelphia Fed Manufacturing Index and NY Empire State Manufacturing Index, will also be under the spotlight - TradingEconomics

‣

Calendar (UTC-4)

‣

Major Economies

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 12-mo Estimate	🔴	225.49	225.5	228.39	January 1, 2023
Forward 12-mo PE	⚪️	19	19	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5.25	5.27	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	10.8	11.66	-0.86	-7.38%
SPX GEX Flip	🔵	4,197.5	4,182.5	15	0.36%
SPX Skew Adjusted GEX	🔵	19,208,610,489	12,182,489,362	7,026,121,127	57.67%
Equity Put/Call Ratio (CBOE)	🔴	0.5	0.52	-0.02	-3.85%
VIX Put/Call Ratio (CBOE)	🔵	0.64	0.28	0.36	128.57%
SPX/W Put/Call Ratio (CBOE)	🔵	1.28	1.21	0.07	5.79%
OEX Put/Call Ratio (CBOE)	🔵	4.8	3.39	1.41	41.59%

Net Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

June E-mini S&P 500 futures settled at a one month high of 4304.75 Friday, up 6.50. Total volume came in at a one month high of 3,378,488, with the June maturity seeing a heavy 2,176,645 done. Overall open interest ended the day at a one month high of 2,658,987, higher by 114,663, or 4.51%. June open interest decreased by 347,333 (15.07%), to 1,957,868.

The June E2A 3750 put saw the most changing hands with 42,858 contracts traded. Greatest volumes in June option trading were seen in the 4400 calls (7,225) and the 4200 puts (6,312). Option open interest is greatest for the June EW3 100 calls at 46,699, and the June EW3 100 puts at 46,520.

E-mini S&P 500 implied volatility finished the session slightly lower as the 30-day at-the-money decreased 0.15% to end at 10.47%, a one week low. The 30-day historical volatility finished the day dropping by 0.17% to a one week low of 12.89%. The 25-delta Risk Reversal was slightly down with the 30-day off by 0.0162%, closing at -2.83%.

Longer TF (W → D) BULLISH - The odds favored test of the larger timeframe Q322 HI 4327.50 level materialized in W23 on a closing basis, qualifying in a larger timeframe bullish change of condition and multi-month breakout. The 4241.75 midpoint of the larger timeframe trend structure is within -2σ (W) 4212.50 (-2.14%). This is the initial line of defense protecting the current breakout leg, which has yet to commence a pullback.

Shorter TF (3H → M30) BULLISH - Thursday → Friday illustrates responsive buyers defending Thursday’s VPOC, and a neutral close inside of Friday’s higher established value. The counter swing structure is suggestive of a higher timeframe pullback, subject to cessation of DTF 1TFU (< 4327.50). The ESM3 Internal Structure 4302 → 4315.50 will re-quoted as 4346.25 → 4357.50 in the coming week as we roll into September ‘23 (ESU3).

Bull v Bear

This Week (30d ATM IV 10.47% v RVOL 12.89%)
Bulls will seek to defend Friday’s Value Area, and ideally extend the YTD HI 4369.50 on a closing basis. Upside: > 4400 (+1.19%) is within +1σ (W) 4419.50 (+1.65%).
Bears will seek to recapture Friday’s Pullback LO 4338.25 → 4327.50 on a closing basis. Downside: < 4300 (-1.13%) is within -1σ (W) expected 4280 (-1.59%).

Last Week (4304.75 JUN23 +0.39%)
Bulls will seek to break 4300 on a closing basis and continue to build price acceptance above. Upside: > Q322 HI 4327.50 (+0.92%) is within +1σ (W) 4365.50 (+1.81%).
~~Bears will seek to recapture Friday’s 4243 BOS and ideally the swing midpoint 4236 (-1.21%) on a closing basis. Downside: < 4200 is~~ ~~beyond~~ ~~-1σ (W) expected 4216 (-1.68%).~~

Indicators

‣

Markets

‣

Positioning

‣

Sentiment

‣

Volatility

‣

Breadth

‣

Disclaimer

‣

Sources