Week of Nov 19 2023

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

5% to 4% bond yields → easier financial conditions → bullish risk. 4% to 3% yields → recession → bearish risk — Michael Hartnett, Bank of America

The fiscal deficit increased significantly in the 12 months ended July 31 providing a major boost to the economic data, especially in the third quarter. That fiscal impulse also eliminated the risk of a hard landing this year and the pricing out of recession likely led to the overshoot on valuation this summer - Morgan Stanley

Margins have stabilized, but substantial expansion from the current elevated level is unlikely due to diminishing tailwinds for S&P 500 profitability. Earnings growth should be around 5%, the same as the projected price increase for the index (4700 at year-end 2024). Valuations are seen steady at ~18x - Goldman Sachs

The massive outperformance of mega-cap technology stocks has been a defining feature of the equity market in 2023, but their dominance largely reflected a reversal of meaningful under- performance in 2022. They returned -39% in 2022 versus with a -11% return for the remaining 493 constituents - Goldman Sachs

Week Ahead

In the United States, investors will focus on the release of the FOMC meeting minutes on Tuesday for insights into future monetary policy directions. Fed policymakers have been weighing the risks of taking both excessive and insufficient action while keeping an eye on the deceleration in inflationary pressures and indications of a loosening labor market. On the economic calendar, the US will witness the release of durable goods orders and the flash S&P Global PMI survey. It's expected that new orders for manufactured durable goods decreased by 3% in October, partially reversing a 4.7% surge from the previous month. Simultaneously, November's PMIs are likely to reveal moderate growth in service business activity and a marginal contraction in the manufacturing sector. Other noteworthy data includes existing home sales, the Chicago Fed National Activity Index, and the final reading of the Michigan consumer sentiment. US markets will be closed on Thursday and will have early closure on Friday due to the Thanksgiving Day holidays. Still, earnings reports will be released for several big companies including: Agilent, Zoom, Nvidia, Lowe’s, Analog, Dell, Autodesk, HP, Dollar Tree, Best Buy, and Deere & Company. Moving on to Canada, updated data on the inflation rate, retail sales, and new home prices will also be in the spotlight - Trading Economics

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Macro Dashboard

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	235.95	236.29	228.39	January 1, 2023
Forward 4-qtr PE	🔵	19.1	18.3	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5.23	5.35	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	11.14	11.79	-0.65	-5.51%
SPX GEX Flip	🔵	4,442.5	4,362.5	80	1.83%
SPX Skew Adjusted GEX	🔴	-1,963,747,224	2,569,756,156	-4,533,503,380	-176.42%
Equity Put/Call Ratio (CBOE)	🔴	0.54	1.03	-0.49	-47.57%
VIX Put/Call Ratio (CBOE)	🔴	0.41	0.93	-0.52	-55.91%
SPX/W Put/Call Ratio (CBOE)	🔵	1.46	1.24	0.22	17.74%

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 at a one month high of 4527.50 Friday, up by 4.25. Overall, a light 1,335,623 contracts changed hands, with 1,331,912 traded in Dec. Combined open interest finished at a one month high of 2,235,406, adding 9,736 (0.44%). Dec open interest increased by 9,530, or 0.44%, to 2,186,436.

Option trading centered around the Nov E3A 4700 calls with 15,130 done and the Nov E3B 3675 puts with volume of 29,202. In Dec options, the most actively traded call was the 4600 strike with 4,891 done, and the 4300 put leads with volume of 3,508. Option open interest is greatest for the Dec 4600 calls at 103,582, and the Dec EW3 3350 puts at 69,275.

Implied Volatility closed moderately down with the 30-day at-the-money losing 0.25%, to finish the day at a one month low of 11.09%. The 30-day historical volatility finished the session lower by 0.0598% to 15.18%. As it fell by 0.1914% to a one month low, the spread between the 30-day constant maturity implied and the 30-day historical volatilities finished the day at -4.09%.

Higher TF (W → D) BULLISH - The odds-favored bullish Change of Character (ChoCh) > LH 4430.50 was confirmed on last week’s CPI catalyst. Moreover, the ensuing consolidation well above Tuesday’s impulse coincides with the base of unmitigated Higher TF supply (red-shaded). Ensuing consolidation will be indicative of a flagging formation, whereas a pullback will facilitate backing and filling into what should be a sufficient base of support. WHI 4541.25 will likely be confirmed as a new HH, and re-targeted (as weak) on confirmation of a supportive HL in the context of favorable Nov→ Dec seasonal tailwinds and declining rates volatility.

Lower TF (3H → M30) BULLISH - The Lower TF reveals value divergence and migration relative to the Higher TF. Pane 1 highlights a clear breakout above the trailing 2-mo value area, yet to be confirmed by Higher TF, but sufficiently confirmed by Lower TF value migration on both WTF and DTF. That said, the air pocket between W45 → W46 value areas is structurally weak and susceptible to an interim pullback, likely to attract a responsive bid. Notice also that the supportive (price adjusted) GEX flip also resides in the below inefficiency zone. Buyers remain in control > the unmitigated LL 4420.25 → WHI.1 4435.50 Lower TF demand zone (Pane 2).

Bull v Bear

This Week (30d ATM IV 11..09% v 30d RVOL 15.18%)
Bulls will seek to extend upside > WHI and confirm a BOS > WHI 4541.25 on a closing basis. Upside: 4458 gap closure and 4600 is within +1σ (W) 4602 (+1.65%).
Bears will seek to cause cessation of DTF 1TFU. Downside: Negative GEX < 4454.00 coincides with -1σ (W) 4455 (-1.62%); 4430.50 breakout backtest (-2.14%).

Last Week (4527.50 DEC23 +2.14%)
Bulls will seek to extend upside > WHI and confirm a BOS > 4430.50 on a closing basis. Upside: 4443.50 gap closure and 4500 is within+1σ (W) 4505 (+1.69%).
~~Bears will seek to cause cessation of DTF 1TFU. Downside: Negative GEX < 4381.50 and recapturing the 50d MA is~~ ~~within~~ ~~-1σ (W) 4342 (-1.64%).~~

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