Week of Dec 31 2023

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

After logging its best first half on record, the Nasdaq 100 proceeded to tack on another ~12% on the way to a 54% gain for the year; the best year since the dot-com bubble. We spelled out the case for the Magnificent 7 to dominate early on, but we failed to realize the group would spend the year becoming the S&P 500 - JonesTrading

It has become consensus that a recession will be avoided, while equity multiples appear rich, credit spreads are tight, and volatility is unusually low. Even in an optimistic scenario, we believe upside is limited for risky assets, favoring cash and bonds over equities from a risk-reward standpoint - JPMorgan

Regardless of what happens next, there was a Santa rally in 2003; the S&P was up 16% from the lows in late-October through Christmas. US markets are betting on faster and earlier rate cuts with last week’s PCE. On a six-month annualized basis, core price growth is now below target, at 1.9% - BNY Melon

Market pricing for rate cuts remain much more aggressive than the December dot plot, and the largest Treasury ETF is on track for a second consecutive 9.5% monthly gain. We can’t help but to appreciate 10-year yields currently trading within a single basis point of where they closed 2022. Nothing to see here - BMO

Week Ahead

The start of 2024 will begin with the highly anticipated release of the FOMC meeting minutes, which will provide insights into the Federal Reserve's future monetary policy decisions. Additionally, all eyes will be on the US jobs report, as well as the latest updates on JOLTs job openings and the ISM Manufacturing and Services PMI survey.

Forecasts suggest that non-farm payrolls for December will increase by 158,000, following a gain of 199,000 the previous month. The unemployment rate is expected to rise to 3.8%, while wage growth is projected to slow down to 3.9%, marking its slowest pace since June 2021. At the same time, job openings are anticipated to rise to 8.8 million in November, rebounding from the two-and-a-half-year low recorded in the prior month.

In terms of manufacturing activity, December is expected to remain within contractionary levels, while the services sector is forecasted to maintain a solid pace of growth. Other important data points to monitor include the ADP employment change, factory orders, and the final S&P Global PMI figures. (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	🔴	234.6	243.38	228.39	January 1, 2023
Forward 4-qtr PE	🔵	20.3	19.5	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5	5.13	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	10.45	11.03	-0.58	-5.26%
SPX GEX Flip	🔵	4,737.5	4,702.5	35	0.74%
SPX Skew Adjusted GEX	🔵	-962,971,169	-1,627,097,276	664,126,107	40.82%
Equity Put/Call Ratio (CBOE)	🔵	0.65	0.5	0.15	30%
VIX Put/Call Ratio (CBOE)	🔴	0.48	0.51	-0.03	-5.88%
SPX/W Put/Call Ratio (CBOE)	🔵	1.33	1.31	0.02	1.53%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

March E-mini S&P 500 futures settled at a one week low of 4820.00 Friday, off by 12.25. Across all maturities, the session saw a light 1,283,161 contracts done, with March volume coming in at 1,281,733. Total open interest added 23,358 (1.07%) to end the session with 2,210,568 outstanding. The March maturity rose 1.06%, or 23,358, to finish at 2,192,874.

The Jan E1C 4000 put saw the most traded with 35,416 contracts done. Largest volumes in Jan option trading were seen in the 4950 calls (2,508) and the 4200 puts (1,836). Calls with the greatest open interest are the Jan EW1 4800 strike (23,585), and for the puts are the Jan E1C 3900 strike (59,411).

Implied Volatility ended the day moderately lower with the 30-day at-the-money dropping 0.22%, to close at a one week low of 10.19%. The 30-day historical volatility settled lower by 0.38% to a twelve year low of 8.32%. As it increased 0.16% to a one month high, the spread between the 30-day constant maturity implied and the 30-day historical volatilities ended the day at 1.87%

Higher TF (W → D) BULLISH - Price acceptance continued to develop in the upper distribution of December’s P-shaped profile during the final and lowest volume week of 2023. We continue to carry forward two large structural gaps (above circled) → backing & filling risk. Futures are poised to recapture the absolute ATH 4839.75 (ETH tested 4841.50 → unfinished business above). Higher timeframe buyers remain in control above December MID 4739 (-1.68%) and will target SPX ATH 4818.62 ~4864 ES (+0.91%).

Lower TF (3H → M30) NEUTRAL - Friday’s liquidation engulfed the entire weekly range, and possibly signaled the start of a Higher TF pullback. Weekly volume was woefully insufficient to confirm a change of condition. Nevertheless, equities were sold into the close on the final trading day of the year. The GEX regime remains positive above 4783 (-0.77%), but shorter timeframe sellers have caused cessation of DTF 1FTU, and WLO 4796.75 (-0.48%) is weak relative to Friday’s RTH HI 4835.00 (+0.31%).

Bull v Bear

This Week (30d ATM IV 10.19% v 30d HV 8.32%)
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%).

Last Week (4820.00 MAR24 +0.31%)
Bulls will seek to extend upside and price acceptance > WHI on a closing basis. Upside: Futures adjusted SPX ATH 4850(+0.93%) is within +1σ (W) 4879 (+1.53%).
~~Bears will seek to cause cessation of DTF 1TFU and ideally establish price acceptance < WVAL 4770.50. Downside: GEX Flip 4755 (-1.05%) is~~ ~~within~~ ~~-1σ (W) 4733 (-1.50%).~~

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