Week of Aug 06 2023

Market Wrap

EOW 31- Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 2.3% 4375.3→ 4581.3)

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

Narratives

A great misperception exists among equity market participants — that macro factors have been the principal driver of nearly three quarters of US equity market returns in 2023. Lower stock correlation outweighed receding volatility and drove return dispersion higher. Even as implied vol is low, the ratio of average single-stock implied volatility to index-level implied volatility now sits at a five-year high, suggesting dispersion should be elevated going forward — David Kostin, Goldman Sachs

Unloved commodities are among the best-performing assets since the US debt ceiling resolution. Currently, the catalyst is the absent US recession. Whether the downturn is a total no-show or just late will be a key determinant for commodities going forward. And paradoxically, the world’s panicked efforts to make the energy transition could easily be a boon to commodities. Energy stocks remain cheap on a relative basis - Bank of America

Goldman’s Risk Appetite Indicator sits near YTD highs, not surprising given re-risking across both systematic and discretionary investor cohorts, the late-May inflection in US equity flows and individual investor sentiment, and the generalized sense that record highs for the S&P are inevitable. While very negative RAI levels are a bullish, contrarian signal, outside of shocks, elevated risk appetite is less clearly bearish, at least initially - Goldman Sachs

The US yield curve bear steepened on higher real risk premia despite a lack of fundamental news. Repositioning in advance of anticipated (Japanese) selling and/or repricing recession odds lower via higher bond yields could be in play. But if that were the case, you’d expect more movement at the front end. Deep Fed cuts remain priced, suggesting that market-implied recession probabilities have not changed that much- Goldman Sachs

Week Ahead

All eyes will be on the CPI report scheduled for Thursday. Investors expect the inflation rate to accelerate to 3.3% from 3% in June, which would mark the first increase in headline inflation since June 2022, mainly reflecting base year effects from energy costs. The core rate is seen steady at 4.8%, remaining well above the Federal Reserve's 2 percent target. Other crucial economic releases to watch for include the preliminary estimate of Michigan Consumer Sentiment, producer prices, foreign trade data, IBD/TIPP Economic Optimism Index, and the government's monthly budget statement. The flow of earnings releases is expected to slow down, but investors can still anticipate major reports from prominent companies such as The Walt Disney Co, AMC Entertainment, Novo Nordisk, Barrick Gold, Eli Lilly and Co, Take-Two Interactive Software, Twilio, and Upstart Holdings - TradingEconomics

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Calendar (UTC-4)

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US Macro

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔵	230.84	230.44	228.39	January 1, 2023
Forward 4-qtr PE	🔴	19.4	19.9	17.2	January 1, 2023
Nominal Earnings Yield	🔵	5.15	5.03	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	13.71	10.93	2.78	25.429999999999996%
SPX GEX Flip	🔴	4,517.5	4,532.5	-15	-0.33%
SPX Skew Adjusted GEX	🔴	-15,231,076,864	6,561,566,668	-21,792,643,532	-332.13%
Equity Put/Call Ratio (CBOE)	🔴	0.66	0.71	-0.05	-7.04%
VIX Put/Call Ratio (CBOE)	🔵	0.69	0.3	0.39	130%
SPX/W Put/Call Ratio (CBOE)	🔵	1.45	1.13	0.32	28.32%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

For the fourth consecutive session, E-mini S&P 500 futures ended lower, with the Sep contract settling Friday at 4498.00, down by 23.75. Across all maturities, volume came in at a one month high of 2,053,256, with the Sep maturity seeing a heavy 2,044,936 traded. Total open interest decreased 2,141, or 0.0966%, to 2,215,334. Sep dropped 3,716 (0.17%), finishing at 2,182,144.

Option trading centered around the August E1A 4575 calls with 14,538 done and the August E2B 3775 puts with volume of 39,650. For Sep options, the 4600 calls had the highest volume with 3,975 traded, and the most active put was the 4400 strike with 5,474 contracts done. Calls with the largest open interest are the Sep 4700 strike (18,523), and for the puts are the August E1A 3675 strike (67,946).

As measured by the 30-day at-the-money, implied volatility finished moderately higher, up 0.21% to close the session at a one month high of 13.45%. Historical volatility (30-day) finished at 9.72%, dropping 0.18%. The 30-day volatility spread (IV-HV) added 0.39% to close the day at a one month high of 3.73%.

Higher TF (W → D) BULLISH - The spread between Q223 → Q323 (developing) value notably exceeds any preceding QoQ period since the onset of the 2022 cyclical bear. This spread has resulted in weak market structure in between, and requires backing and filling to form a durable base to support the continuation of the secular uptrend. A fractal high on the weekly timeframe will likely be confirmed this week signaling an interim high - coincidental with the defense of the Q222 HI.

Lower TF (3H → M30) BEARISH - W31 featured cessation of 11 consecutive weeks of 1TFU. The pullback thus far coincides with a retest of the June highs. A break and hold back into June will create scope for retesting the opposite end of the range, coinciding with the 2-mo VAL 4373.75 and a higher timeframe unmitigated demand zone marginally beyond -1σ (W) expected. Lower timeframe sellers remain in control < Friday’s Outside Day HI 4560.75.

Bull v Bear

This Week (30d ATM IV 13.45% v 30d RVOL 9.72%)
Bulls will seek to defend the June 4493.75 breakout and ideally recapture DTF 1TFU (> 4560.75). Upside: 4600 (2.27%) is marginally beyond +1σ (W) 4590 expected (+2.05%).
Bears will seek to break back into the June range and target the rising 50d MA 4436 (-1.38%). Downside: Trailing 2mo VAL 4373.75 (-2.76%) is within -2σ (W) 4322 expected (-3.91%).

Last Week (4606.50 SEP23 +0.91%)
~~Bulls will seek to recapture DTF 1TFU (> 4615.50), and ideally the WHI > 4634.50 on a closing basis. Upside: 4700 (2.03%) is marginally~~ ~~beyond~~ ~~+1σ (W) 4679.50 expected (+1.58%).~~
Bears will seek to break the 1TFU configuration < WLO 4553.75 (-1.15%) on a closing basis. Downside: < WLO.1 4528 (-1.7%) is marginally beyond -1σ (W) 4536 expected (-1.53%).

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Sources