Week of May 14 2023

Market Wrap

EOW 19 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 2.3% 4029.3 → 4219.0)

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

Narratives

While the S&P 500 has held up, buoyed by mega cap strength, it may not be the most reliable indication that the macro backdrop remains robust. The copper-gold ratio, transports relative performance, crude prices and the China PMI have all receded recently — at odds with the more resilient growth outlook currently implied by the durability of the major equity indices. If US growth is resilient, it implies a tight labor market and stickier inflation, dynamics that likely would not prompt the Fed to cut rates in 2023. In contrast, in the event deteriorating growth conditions do prompt the Fed to cut rates this year (which is not our economists’ view), that would likely be risk-off for equities anyway from a tactical standpoint — Mike Wilson, Morgan Stanley

In the entire postwar period, there has never been a decline in the job openings rate as large as what we have seen over the past year that was not accompanied by a recession and a large rise in the unemployment rate. While many economists take this observation as a sign that the worst is yet to come, our view remains that it’s a sign that this cycle is different - Goldman Sachs

Over the past six months, seven out of 11 sectors in the S&P 500 have recorded a negative correlation with two-year Treasury yields. Assuming credit conditions continue to tighten, thereby substituting for the additional rate hikes the Fed planned prior to March 8, investors could continue to allocate to bonds, driving down yields and driving up growth stocks through multiple expansion - SocGen

The slowdown in earnings growth, the increase in policy uncertainty following the recent banking stress and high starting valuations at which to repurchase stock all pose headwinds to buybacks. Cash balances have dropped meaningfully (one existing source of capital to fund buybacks) while the cost of debt has risen sharply, removing the incentive for debt-funded buybacks - Goldman Sachs

Week Ahead

Investors will closely monitor several Fed officials' appearances next week, including a conversation between Chair Jerome Powell and former Chair Ben Bernanke at the Thomas Laubach Research Conference on Friday, for further clues on the Fed's policy path. Vice Chair for Supervision Michael Barr will also make a semiannual testimony before the House and the Senate on supervision and regulation.

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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	🔴	13.69	14.2	-0.51	-3.59%
SPX GEX Flip	🔵	4,127.5	4,122.5	5	0.12%
SPX Skew Adjusted GEX	🔴	-1,620,815,867	5,235,353,531	-6,856,169,398	-130.96%
Equity Put/Call Ratio (CBOE)	🔵	0.7	0.69	0.01	1.45%
VIX Put/Call Ratio (CBOE)	🔴	0.49	0.57	-0.08	-14.04%
SPX/W Put/Call Ratio (CBOE)	🔵	1.38	1.29	0.09	6.98%
OEX Put/Call Ratio (CBOE)	🔴	0.22	0.54	-0.32	-59.26%

Net Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

Friday's E-mini S&P 500 market was slightly lower with the June contract off 5.75 to 4138.00. Across all maturities, the session saw a light 1,440,520 contracts done, with June volume coming in at 1,434,601. Overall open interest increased by 1,720, or 0.0747%, to end the session with 2,305,150 outstanding. The June maturity gained 0.0337% (1,720) to finish at 2,269,294.

The May E3B 3425 put saw the most changing hands with 58,919 contracts traded. For June options, the 4300 calls had the high volume with 2,628 changing hands, and the most actively traded put was the 3800 strike with 4,536 contracts traded. Option open interest is largest for the June EW3 100 calls at 32,306, and the May E3B 3425 puts at 58,989.

Implied Volatility ended the session moderately down with the 30-day at-the-money lower by 0.47%, to close the day at a one week low of 13.27%. Historical volatility (30-day) finished the session at 12.09%, down by 0.0497%, to a one week low.

Longer TF (W → D) NEUTRAL - We continue to observe multi-quarter consolidation between the December 3788.50 LO and the February 2023 4208.50 HI. A tepid bullish case is predicated on Q2 value staying above Q1, following two rejected retests of Q1 VAH. Conversely, sellers successfully defended the February (YTD) high of 4208.50 (+1.7%), resulting in an Outside-to-Inside Week formation that oft-precedes a directional move. The highlighted trading range remains inside the 2022 LO 3502.00 and the Q3 2022 HI 4327.50, indicative of balancing within a higher timeframe balance.

Shorter TF (3H → M30) NEUTRAL - We observe a shorter timeframe pullback within the Outside-to-Inside Week formation, which has yet to confirm a (bearish) Break of Structure (BOS). Notice that the 3H timeframe highlights liquidity grabbing price action (yellow circled buying tails) in forming the past two WLOs; the 3H was unable to close below either preceding higher low. The lack of a confirmed BOS signals both 4164.50 LH and 4206.25 (WHI.1) as weak, and further confirms the 3H pro-swing, counter-internal structure (cyan rectangle).

Bull v Bear

This Week (30d ATM 13.27% v 14.04% p)
Bulls will seek to break WHI 4167.00 and ideally recapture WHI.1 4206.25. Upside: > YTD HI 4208.50 (+1.7%); HH 4217.25 (+1.92%) are within +1σ (W) 4222.25 (+2.04%).
Bears will seek to extend 1TFD < WLO 4111.75 on a closing basis. Downside: < 4100(-0.92%); APR LO 4068.75 (-1.67%); WLO.1~50d MA 4062.25 (-1.83%) are within -1σ (W) 4057 (-1.96%).

Last Week (4138.00 JUN23 -0.3%)
~~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.

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