Week of May 05 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

We are observing a complex macro backdrop with balanced risks. While the soft landing base case supports modest risk asset upside, stagflation threats are growing amid late-cycle dynamics. Liquidity and volatility are well-behaved for now but vulnerable to data/policy surprises. Investor positioning is cautious but not extremely bearish, leaving room for shifts in either direction. Bonds remain challenged, USD upside is limited, and commodities are preferred. Navigating this environment likely requires tactical agility, risk management and a balanced allocation — Claude 3 Opus (Sources: Yardeni Research, Bank of America, Goldman Sachs, Datatrek Research, Fundstrat FS Insight)

In the current environment, the Fed is seeking greater confidence that inflation is converging toward 2% on a sustainable basis. While Powell did not specifically say this meant a median forecast of fewer than three cuts this year, it is the obvious implication. Needing more time means later and fewer cuts, but the Fed is not seriously entertaining the prospect of hikes at this point - Bank of America

The decline in our estimate of underlying inflation has halted. Our estimate of underlying inflation held at 3.1% q/q (Seasonally Adjusted Annual Rate) for the third consecutive quarter following seven straight quarters of decline. The good news is that underlying inflation is down about 1.6% from its peak in Q421, but the bad news is that that progress in recent quarters has stalled out, for now - Bank of America

Equities have shown evidence of turning back higher following confirmed breakouts in AAPL and indication of both Treasury yields and US Dollar turning lower. While the Equal-weighted S&P has some work to do to regain a bullish structure, the comeback in Healthcare and Industrials lately has been constructive. Small & Mid-cap indices also managed to clear recent highs, which is bullish - FS Insight

Week Ahead

With US equities struggling to find direction this past week, the key question has become: Is this pullback ongoing? Or are equities starting to stabilize, with the uptrend about to resume? The move lower in rates/bond yields, in that respect, is encouraging for the bulls (e.g. 10 year yields are down ~20bps from their 25th April high). The upcoming week in the US will be relatively quiet, with the Michigan consumer confidence index with the focus on policymakers' comments for insights into the Federal Reserve's monetary policy. The large-cap earnings season is set to wrap up with reports from companies like Vertex Pharmaceuticals, Walt Disney, BP, Toyota, Uber, Airbnb, and Shopify.

Globally, various central banks, including those from the UK, Australia, Brazil, Sweden, Malaysia, and Poland, are scheduled to announce their interest rate decisions. China will also be under the spotlight with data on Caixin Services and Composite PMIs, foreign trade, inflation rates, and new loans. Meanwhile, updates on factory orders, industrial production, and trade balance figures are expected from Germany.

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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	🔵	253.25	252.55	243.98	January 1, 2024
Forward 4-qtr PE	⚪️	20.2	20.2	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.94	4.95	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	11.83	12.89	-1.06	-8.22%
SPX GEX Flip	🔵	5,122.5	5,092.5	30	0.59%
SPX Skew Adjusted GEX	🔴	-133,616,235	308,708,519	-442,324,754	-143.28%
Equity Put/Call Ratio	🔵	0.6	0.55	0.05	9.09%
VIX Put/Call Ratio	🔴	0.79	1.37	-0.58	-42.34%
SPX/W Put/Call Ratio	🔴	1.37	1.42	-0.05	-3.52%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

June E-mini S&P 500 futures settled at a one week high of 5154.75 Friday, adding 63.25, or 1.24%. Overall the session saw 1,608,781 contracts change hands, with June volume coming in at 1,604,172. Across all maturities, open interest rose 14,330 (0.71%), with June up 12,674, or 0.64%, to 1,991,775.

Option trading centered around the May EW2 5225 calls with 11,320 changing hands and the May E1B 4275 puts with volume of 40,211. For May options, the 5300 calls were the most actively traded with 5,794 done, and the high volume put was the 4900 strike with 5,566 contracts changing hands. Option open interest is greatest for the May EW3 5400 calls at 55,424, and the May E1A 4200 puts at 71,910.

Implied Volatility finished the day sharply lower with the 30-day at-the-money dropping by 1.29%, to settle at a one month low of 11.81%. Gaining 0.65% to a one month high, historical volatility (as measured by the 30-day) finished the day at 12.97%. The 30-day volatility spread (IV-HV) fell 1.94% to settle at a one month low of -1.16%.

Higher TF (W → D) NEUTRAL - Price action is signaling that the late March pullback may be complete. Friday’s breakout exceeded last week’s high on a closing basis as well as the 50% retracement, which held the initial rally off the lows. That said, the 50d MA 5071 (+0.32%) remains an important inflection point, but odds now favor its recapture and continued advancement towards a 5200 retest, coincidental with the Q2 VAH and quarterly timeframe value area sweep.

Lower TF (4H → M30) BULLISH - W17 → W18 has confirmed a series of higher lows and higher highs signaling a bullish change of condition on the lower timeframe, but still within a higher timeframe corrective structure below 5250 (+1.85%). In this context, price acceptance and mitigation of the W15 FVG, which coincides with 5200 → +1σ weekly expected range, will be keenly observed, presuming continuation of Friday’s breakout and strong position of close.

Bull v Bear

This Week: 30d ATM IV 11.81% v 30d HV 12.97% -1.16%
Bulls will seek to extend WTF 1TFU and price acceptance above the 50d MA 5164 on a closing basis. Upside: 5200 (0.88%) is within +1σ (W) 5237 (+1.60%).
Bears will seek to recapture DTF 1TFD and ideally the 5100 gap on a closing basis. Downside: WLO 5036.25 (-2.30%) is beyond -1σ (W) 5075 (-1.55%).

Last Week: 5154.75 JUN24 +0.46%
Bulls will seek to establish price acceptance above the 50d MA 5164 on a closing basis. Upside: 5200 (1.33%) is within +1σ (W) 5223 (+1.78%).
Bears will seek to recapture DTF 1TFD and ideally 5100 on a closing basis. Downside: WVAL 5061.25 (-1.37%) is within -1σ (W) 5043 (-1.72%).

Indicators

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Markets

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Sentiment

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Volatility

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Disclaimer

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Sources