Week of Jan 14 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

Only five times in last 90 years has the Fed cut rates with core CPI above the unemployment rate. Those cuts were triggered by war or recession, but neither is the case in 2024 which is why Wall Street is soooo risk-on. At least until the US labor market transitions to redundancies — Michael Hartnett, BofA

The Fed raised rates, but thanks to depositor bailouts and RRP drain, liquidity conditions remained very forgiving. Indeed, despite QT running in the background and in the face of massive T-Bill issuance, reserves actually rose - Morgan Stanley

Consumer cash cushions were ample last year, and not lost on the C-suite. The Greedflation-driven surge in margins helped stop the profits slowdown turning into a deep downturn. That derailed a recessionary slump in business investment last year - BMO

As tax bills come due this year, we suspect some investors may appreciate the merits of equities (lower tax rate when held for at least a year). Treasury coupons are taxed at ordinary income rates; and all of 2023 returns from Treasurys came from coupons - Bank of America

Week Ahead

In the United States, December's retail sales is a key indicator to watch. It's expected to have grown by 0.3%, the same rate as the previous month. Conversely, industrial production is likely to remain unchanged, continuing the 0.2% growth seen in November. The Michigan consumer sentiment report is predicted to show a slight drop in morale for January.

The housing sector will also be under scrutiny, particularly building permits and housing starts, existing home sales, and the NAHB Housing Market Index. Other data to follow includes foreign trade prices, business inventories, overall capital flows, the NY Empire State Manufacturing Index, and the Philadelphia Fed Manufacturing Index.

Investors will also closely monitor speeches by several Fed policymakers to gauge the possible timing of interest rate cuts by the US central bank this year. Concurrently, the earnings season will enter its second week with expected reports from major companies such as Morgan Stanley, Goldman Sachs, US Bancorp, Charles Schwab, PNC, and ProLogis.

The US stock market will be closed on Monday in observance of the Martin Luther King Day holiday. (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	🔴	243.52	243.98	228.39	January 1, 2023
Forward 4-qtr PE	🔴	19.6	20.16	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5.09	5.19	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	10.48	11.6	-1.12	-9.66%
SPX GEX Flip	🔵	4,747.5	4,717.5	30	0.64%
SPX Skew Adjusted GEX	🔴	-1,695,277,435	-1,385,426,191	-309,851,244	-22.37%
Equity Put/Call Ratio (CBOE)	🔵	0.83	0.7	0.13	18.57%
VIX Put/Call Ratio (CBOE)	🔴	0.19	0.83	-0.64	-77.11%
SPX/W Put/Call Ratio (CBOE)	🔴	1.34	1.38	-0.04	-2.9%

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 mostly lower with the March contract gaining 1.00 to 4816.50. Overall volume was 1,522,005, with March seeing 1,519,899 traded. Across all maturities, open interest fell by 586 (0.0267%) to 2,197,861. March lost 1,356, or 0.0623%, finishing at 2,176,293.

Option trading centered around the Jan EW3 4850 calls with 6,935 changing hands and the Jan E3C 4000 puts with volume of 56,288. Option open interest is largest for the March 5000 calls at 17,029, and the Jan E3C 4000 puts at 60,234.

Implied Volatility ended slightly higher with the 30-day at-the-money up by 0.0158%, to settle at 10.34%. Off 0.0191%, historical volatility (as measured by the 30-day) closed the session at 9.85%.

Higher TF (W → D) NEUTRAL - WLO.1 (prior week) coincided with the bottom of a prominent LVN. We highlighted that had selling pressure been more serious, such technical levels would never hold. This week, the lack of follow-through proved an attractive entry for responsive buyers with sufficient strength to recapture WTF 1TFU and retrace most of the highlighted swing structure recapture: 4702 → 4841.50. January price action thus far reflects a bullish developing balance above 4700; buyers remain in control above 4771.75 (-0.93%).

Lower TF (3H → M30) BULLISH - Buyers re-captured the weekly 1TFU configuration at the margin during a 3-day developing balance between 4767.50 → 4338 (WHI). The Wednesday → Friday consolidation was sufficient to lift the weekly value area outside and above WVA.1. Friday’s Inside Day serves as the reference range for the coming week with both market structure and the position of close favoring upside continuation. That said, the underlying S&P 500 needs to clear and build price acceptance above the Jan ‘22 ATH to confirm strength.

Bull v Bear

This Week (30d ATM IV 10.34% v 30d HV 9.85%)
Bulls will seek to extend WTF 1TFU > 4838 on a closing basis. Upside: 4841.50 ETH HI (+0.52%) is within +1σ (W) 4889 (+1.51%); 4900 is within +2σ (W) 4962 (+3.02%).
Bears will seek to recapture DTF 1TFD on a closing basis. Downside: GEX Flip 4780.50 (-0.75%), 4767.50 HL (-1.02%), and 4754.25 (-1.29%) are within -1σ (W) 4746 (-1.46%).

Last Week (4816.50 MAR24 +1.70%)
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%).~~

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