Week of Jan 07 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

The perception is clearly that the tone of apprehension in ISM is more ‘real time’ and forward-looking than the notoriously lagging labor data. Given this context, fading the concern is less compelling than leaning into the assumption that the first few weeks of the year will err on the side of volatility versus clarity. We anticipate this will also extend to monetary policy expectations as each incoming major data release will contribute to the debate regarding whether the FOMC will cut rates in March. Despite current market pricing, we don’t see anything in the combination of the employment report and ISM that would convince the Fed to cut in Q1 — Ian Lyngen and Ben Jeffery, BMO

2023 was yet another reminder that the direction of US bond yields remains of paramount importance to the performance of asset markets, and without the end-of-year pivot, the outturn would have been far gloomier. A record share of equity market cap needs or wants lower bond yields - SocGen

It’s also rare for ISM manufacturing to be mired in a prolonged contraction when payrolls are buoyant, and Friday’s NFP headline only made the disconnect above more glaring. If the factory malaise persists through April, that’s be the longest contraction in more than two decades - Bank of America

The local options dealer profile remains somewhat benign. We’d need to push through 4700, which then requires a 4650 break to see more escalatory price action to the downside given the potential for dealers to flip into a short gamma regime just as CTA sell flows get triggered - Nomura

Week Ahead

In the United States, all eyes are focused on the US inflation data, which will provide further insight into the Federal Reserve's monetary policy outlook. Forecasts indicate that consumer prices likely increased by 0.2% in December, following a 0.1% gain in November. The core rate is expected to have risen by 0.2% as well, showing a slight easing compared to the previous month's 0.3% increase. On an annual basis, the headline inflation rate is projected to rebound to 3.2% from November's five-month low of 3.1%, while the core rate is likely to have eased to 3.9%, the lowest since May 2021. Other important economic data to monitor includes producer prices, foreign trade metrics, the RCM/TIPP Economic Optimism Index, and the monthly budget statement. (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	🔴	232.95	234.6	228.39	January 1, 2023
Forward 4-qtr PE	🔴	20.16	20.3	17.2	January 1, 2023
Nominal Earnings Yield	🔵	5.19	5	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	11.6	10.45	1.15	11%
SPX GEX Flip	🔴	4,717.5	4,737.5	-20	-0.42%
SPX Skew Adjusted GEX	🔴	-1,385,426,191	-962,971,169	-422,455,022	-43.87%
Equity Put/Call Ratio (CBOE)	🔵	0.7	0.65	0.05	7.690000000000001%
VIX Put/Call Ratio (CBOE)	🔵	0.83	0.48	0.35	72.92%
SPX/W Put/Call Ratio (CBOE)	🔵	1.38	1.33	0.05	3.7599999999999993%

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 higher with the March contract up by 5.25 to 4734.75. Total volume was 1,775,165, with March seeing 1,767,245 change hands. Combined open interest shed 11,341 (0.51%) to 2,231,153. March dropped 12,041, or 0.54%, finishing at 2,211,632.

The Jan E2B 4075 put saw the most changing hands with 40,846 contracts done. For Jan options, the 4800 calls were the most active with 2,503 traded, and the high volume put was the 4675 strike with 6,136 contracts changing hands. Options with the most open interest are the March 5000 call with 15,627, and the Jan E2A 4050 put with 70,514.

E-mini S&P 500 implied volatility ended the day down as the 30-day at-the-money decreased 0.47% to close at 11.54%. The 30-day historical volatility settled down 0.0326% to 9.00%.

Higher TF (W → D) NEUTRAL - The breakdown below the upper distribution of December’s P-shaped profile confirmed a higher timeframe pullback as the first of two structural gaps began backing & filling repair (above circled). WLO exactly coincided with the bottom of this LVN. Had selling pressure been more serious, such technical levels would never hold. That said, the weak position of close and market structure suggests unfinished business below. 4600 (-2.85%) is within -2σ of weekly implied range.

Lower TF (3H → M30) BEARISH - Higher timeframe pullbacks are facilitated by shorter timeframe trends. Notice that price was immediately rejected below the 4720.50 midpoint of the swing structure. The WLO bullish divergence bar was just beyond the threshold of triggering a trend reversal signal owed to insufficient angulation relative to momentum - but close. Shorter timeframe market structure remains bearish, and the first cause for pause will be cessation of the daily 1TFD configuration.

Bull v Bear

This Week (30d ATM IV 11.54% v 30d HV 9.00%)
Bulls will seek to recapture DTF 1TFU > 4760.25 on a closing basis. Upside: 4800 is within +1σ (W) 4810 (+1.59%); WHI 4828 (+1.97%); 4841 2023 ETH HI is within +2σ (W) 4865 (+3.17%).
Bears will seek to extend DTF 1TFD and ideally close below WLO 4702 (-0.69%). Downside: 4688 Put Wall is within -1σ (W) 4662 (-1.54%); 4600 is within -2σ (W) 4589 (-3.08%).

Last Week (4734.75 MAR24 -1.18%)
~~Bulls will seek to recapture DTF 1TFU > 4835 and ideally the futures adjusted ATH 4864 on a closing basis. Upside: No resistance > 4864 → +1σ (W) 4891 (+1.47%).~~
Bears will seek to extend DTF 1TFD and ideally cause cessation of WTF 1TFU < 4796.75 on a closing basis. Downside: GEX Flip 4783 (-0.77%) is within -1σ (W) 4751 (-1.43%).

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