Week of Jul 02 2023

Market Wrap

EOW 26 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 1.8% 4370.1 → 4530.3)

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

Narratives

This is what I’ve been calling the Animal Spirits 2.0 scenario: the positive wealth effect being created for US consumers between raging markets and now reaccelerating home values could re-stimulate consumer behavior alongside policy tightening that hasn’t yet conquered hot nominal GDP growth with the backdrop of a still too-massive Fed balance sheet and remaining excess pandemic savings. Any further overshoot in the US data could act as a much-needed rate vol catalyst for a reversal in the current soft landing Goldilocks macro scenario behind the powerful resumption of the short vol regime — Charlie McElligott, Nomura

While the narrowness of the market rally is certainly notable, it’s also true that in any given year equity returns tend to be concentrated in a small group of out-performers. The top 10 stocks typically account for a third of the S&Ps return in a given year - Goldman Sachs

Between the flows into income / overwrite / underwrite funds, as well as the current profitability of systematic gamma / straddle sellers and finally, the obvious re-proliferation of dispersion teams, there is simply too much vol supply and vol-selling at the index level - Nomura

Valuations of equities have increasingly de-coupled from real rates. Multiples have increased sharply in recent weeks despite a rise in real bond yields. This implies that either investors expect rapid rate cuts, or that long-term growth expectations have gone up - Goldman Sachs

Week Ahead

The coming week in the United States is packed with important releases, including the FOMC meeting minutes, the US jobs report, and ISM PMI surveys for June. The FOMC meeting minutes, scheduled for Wednesday, should provide further insights into the Federal Reserve's monetary policy trajectory. On the economic data front, non-farm payrolls are projected to increase by 200 thousand in June, the lowest since December 2020, while the unemployment rate is expected to remain unchanged at a seven-month high of 3.7%. Additionally, the ISM reports are likely to indicate a modest increase in service sector activity but a decline in manufacturing output. Other data to monitor includes May's job openings, factory orders, and foreign trade data, as well as June's ADP employment change and the final readings of PMI data from S&P Global - TradingEconomics

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Calendar (UTC-4)

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Major Economies

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	224.01	224.33	228.39	January 1, 2023
Forward 4-qtr PE	🔵	19.9	19.4	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5.03	5.16	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	10.7	10.97	-0.27	-2.46%
SPX GEX Flip	🔵	4,357.5	4,317.5	40	0.93%
SPX Skew Adjusted GEX	🔵	6,484,367,740	5,530,295,773	954,071,967	17.25%
Equity Put/Call Ratio (CBOE)	🔴	0.53	0.64	-0.11	-17.19%
VIX Put/Call Ratio (CBOE)	🔵	0.3	0.19	0.11	57.89%
SPX/W Put/Call Ratio (CBOE)	🔵	1.4	1.34	0.06	4.48%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

Sep E-mini S&P 500 futures closed the day at a contract high of 4488.25 Friday, gaining 52.50 or 1.18%. Across all maturities, the session saw 1,777,470 contracts traded, with Sep volume coming in at 1,774,940. Combined open interest lost 1,211, or 0.0546%, to 2,218,025. Sep fell 2,016 (0.0915%), finishing at 2,200,628.

Option volumes were largest for the July EW3 4600 call (14,375) and the July E1C 3675 put (37,870). Option open interest is largest for the July EW3 100 calls at 19,341, and the July E1C 3675 puts at 44,173.

As measured by the 30-day at-the-money, implied volatility ended lower, dropping by 0.46% to finish at a one month low of 10.39%. The 30-day historical volatility ended the day higher by 0.14% to 11.81%.

Longer TF (W → D) BULLISH - The strong position of Q223 close raised the bar for cessation of the quarterly 1TFU configuration (< MAY LO -9.5% ~ 200d MA). Notice also that June value has materially advanced above Q2 value (~300 handle divergence). This confirms the lower MTF facilitating the increase of value on the higher QTF. Collectively, bullish price action as we enter the best seasonal period for US equities (the first 15 days of July) - which conversely offers attractive exit liquidity for the larger timeframe.

Shorter TF (3H → M30) BULLISH - Sellers failed to establish price acceptance below WLO.1 causing a full sweepback of the previous high - unsurprising in the backdrop of H123 window dressing. That said, a plausible (shorter timeframe) sell signal emerged on the Friday close: 3H angulation, a new HH that failed to close above of the prior (YTD) HI 4393.75, combined with 3 declining lower timeframe (M30) momentum bars. Shorter timeframe counter-trends, once confirmed, facilitate larger timeframe pullbacks.

Bull v Bear

This Week (30d ATM IV 10.39% v 30d RVOL 11.81%)
Bulls will seek to clear and build price acceptance > 4500 on a closing basis. Upside: > 4631 Q222 HI (+2.2%) is marginally within the +2σ (W) 4634 (+3.25%).
Bears will seek to mean revert inside the trailing 4w VA (4371 → 4498). Downside: 4418.50 WPOC (-1.55%) coincides with the -1σ (W) expected range (-1.57%).

Last Week (4488.25 SEP23 +2.21%)
Bulls will seek to recapture and maintain DTF 1TFU > 4427 on a closing basis. Upside: > 4485.50 Supply Zone (+2.2%) is marginally above the +1σ (W) 4459 (+1.59%).
~~Bears will seek to increase momentum < WLO 4381.50 on a closing basis. Downside: 4330 HVN (-1.34%) is~~ ~~within~~ ~~the~~ ~~-1σ (W) expected range 4321 (-1.55%).~~

Indicators

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Sources