Week of Oct 22 2023

Market Wrap

EOW 42 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 2.5% 4118.5 → 4329.8)

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

Narratives

Investors are sufficiently bearish for the 10-year yield at 5% to be a ceiling and SPX 4200 to be a floor to hold short-term. If SPX 4200 can’t hold with this level of bearishness then there may be imminent risks of a credit event/hard landing — Michael Hartnett, BofA

Three of four BofA trading rules now flash a buy signal. In addition to the Bull & Bear Indicator below 2.0 and FMS cash levels above 5%, a flow rule was triggered when redemptions as a percentage of AUM over four weeks rose beyond 1%. The one rule not flashing buy is a breadth indicator. For that, more than 88% of the All-Country World Index would need to be oversold - Bank of America

Aggregate S&P 500 cash/assets ratio has declined during the past two years and ranks in the 13%ile relative to the last 10 years and in the 9%ile for the typical stock. R&D spend will grow just 4% and 7%, respectively, in 2024, down from 7% and 12% in 2023 and 21% and 14% in 2022. Buybacks, meanwhile, will grow 4% next year, after falling 15% this year - Goldman Sachs

In contrast with the rise in yields earlier in the summer, the latest leg higher in yields has been driven by factors beyond just improving growth expectations. Investors have rotated away from stocks perceived to be vulnerable to the higher rate backdrop, including those with levered balance sheets. The strain is more acute on small-caps: net debt to EBITDA is 2.9x vs. 1.7x for the S&P - Goldman Sachs

Week Ahead

We are entering one of the busiest weeks on the earnings calendar, with major tech firms such as Alphabet, Microsoft, Meta, and Amazon set to release their results. Other big companies to watch include 3M Co, Coca-Cola, General Motors, Spotify, Verizon Communications, Snap, Visa, Mastercard, Automatic Data Processing, Boeing, CME Group, Merck & Co, Ford Motor, Intel, Chevron, and Exxon Mobil. Turning to the economic calendar, the US will publish the advance estimate of third-quarter GDP, along with September's personal outlays and income. It is expected that the US economy expanded by an annualized rate of 4.1% in Q3,, marking an acceleration from the 2.1% growth in the previous quarter, due in part to robust consumer spending and increased private investment. It is anticipated that core PCE prices will have risen by 0.3% in September, a slight increase compared to the 0.1% gain observed in August. The report is also expected to reveal a 0.3% increase in consumer spending and a 0.4% advance in income for the same period. Furthermore, investors will closely monitor September's durable goods orders, the flash S&P Global PMI survey, new and pending home sales, the Chicago Fed National Activity Index, the advance estimates of wholesale sales and the goods trade balance, as well as the final reading of the Michigan consumer sentiment - Trading Economics

‣

Calendar (UTC-4)

‣

US Macro

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	238.95	239.22	228.39	January 1, 2023
Forward 4-qtr PE	🔴	17.6	18	17.2	January 1, 2023
Nominal Earnings Yield	🔵	5.66	5.53	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	17.49	14.61	2.88	19.71%
SPX GEX Flip	🔴	4,332.5	4,362.5	-30	-0.69%
SPX Skew Adjusted GEX	🔴	-16,084,681,354	-351,112,632	-15,733,568,722	-4,481.06%
Equity Put/Call Ratio (CBOE)	🔵	0.76	0.7	0.06	8.57%
VIX Put/Call Ratio (CBOE)	🔵	0.87	0.58	0.29	50%
SPX/W Put/Call Ratio (CBOE)	🔴	1.27	1.69	-0.42	-24.85%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

Dec E-mini S&P 500 futures closed the day at a one month low of 4248.50 Friday, down by 54.50 (1.27%). Across all maturities, volume was a heavy 2,337,146, with the Dec maturity seeing 2,328,806 traded. Combined open interest ended the day at a one month high of 2,168,635, adding 42,971 (2.02%). Dec open interest gained 40,360, or 1.92%, to 2,142,799.

Option trading centered around the Feb EW3 100 calls with 8,450 changing hands and the Oct E4A 3600 puts with volume of 123,483. High volumes in Dec option trading were seen in the 4600 calls (4,383) and the 4000 puts (6,288). Option open interest is largest for the Dec 4700 calls at 22,612, and the Oct E4A 3600 puts at 168,994.

E-mini S&P 500 implied volatility finished the day moderately up as the 30-day at-the-money gained 0.36% to end the session at 18.06%, a one month high. The 30-day historical volatility closed the session adding 0.17% to a one month high of 12.92%. As it increased 0.19% to a one month high, the spread between the 30-day constant maturity implied and the 30-day historical volatilities ended the day at 5.14%.

Higher TF (W → D) BEARISH - The (secondary) loss of the 2023 Demand Line constitutes a Higher TF change of condition, likely to be confirmed by a lower MLO (< 4335.50) in the coming week. The path of least resistance now appears to be prominent multi-year 4143 HVN, coinciding with the -1σ expected weekly range as well as the OCT LO anchored-VWAP. Higher TF sellers remain in control absent of a confirmed HL; preferably above the 4235.0 → 4430.5 swing structure midpoint, 4333.0 (+2.0%), and break of structure > LH 4430.5 (+4.28%).

Lower TF (3H → M30) BEARISH - Selling momentum increased as price action sliced through the 4300 → 4342 demand zone, coincidental with the trailing 2-mo VAL (pane 1), a common retrace level for breakout failures (now confirmed). Notice, however, that weekly value did not confirm the move (pane 2). This divergence creates scope for a trap-induced recovery rally to backtest WVAL 4331 (+2.0%), below which Lower TF sellers remain squarely in control. The negative gamma regime remains in effect below 4355.50 (+2.50%) with increased exposure.

Bull v Bear

This Week (30d ATM IV 18.06% v 30d RVOL 12.92%)
Bulls will seek to recapture 4300 (+1.21%) on a closing basis. Upside: WVAL 4331 (+2.0%) is within +1σ (W) 4359 (+2.6%). 50d MA 4414 (+3.91%); WHI 4423.25 (4.11%).
Bears will seek to establish price acceptance below 4200 (-1.44%). Downside: Q422 Anchored VWAP (and multi-year HVN) 4155.25 (-2.19%) is within -1σ (W) 4143 (-2.48%)

Last Week (4248.50 DEC23 -2.01%)
~~Bulls will seek to recapture 4400 and ideally WHI/50d MA 4431 (+1.68%) on a closing basis. Upside:~~ ~~+1σ (W) 4458 (+2.31%). 4500 is~~ ~~below~~ ~~+2σ (W) 4560 (+4.65%).~~
Bears will seek to break below 4300 (-1.31%) on a closing basis. Downside: 200d MA 4265 (-2.12%) is within -1σ (W) 4261 (-2.21%); WLO.1 4235.50 (-2.79%); 4200 (-3.61%).

Indicators

‣

Markets

‣

Positioning

‣

Sentiment

‣

Volatility

‣

Breadth

‣

Disclaimer

‣

Sources