Week of Feb 11 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

The further into the data cycle we get without either a downside surprise on growth/employment or change in messaging from policymakers, the longer investors will expect terminal is maintained. We’ve already seen investors roll forward rate cut certainty from March to May, the next iteration of this trade will be rolling from May to June. Of course, this is predicated on continued economic performance – which nothing we’ve seen thus far would suggest this shouldn’t be the market’s operating assumption. It certainly is ours for the time being. Our sympathy for investors’ eagerness to bring forward rate cut expectations hasn’t waned, it’s that the macro landscape simply doesn’t align with the pricing at this stage — Ian Lyngen and Vail Hartman, BMO

The economy’s resilience in one of the most aggressive tightening campaigns in the modern history of developed market monetary policy includes a very low share of variable-rate debt on household balance sheets and a corporate sector which locked in ultra-low rates while terming out debt profiles. FFR in the 81%ile looking back to 1990 should mean tight financial conditions; only it hasn’t - Jones Trading

The B&B backtests very well and boasts a more or less perfect track record since its inauguration. The current reading is 6.8 is getting close to a sell signal, but we’re not quite there yet. Investors mustn’t forget the old market adage that says “tops are a process, lows are a moment.” Human nature means fear is so much easier to reverse than greed - Bank of America

Bubbles show little respect for positioning or valuation. They solely respect policy and real rates. The long-end selloff which unfolded after the US downgrade pushed yields to cycle highs in late October. Market participants have come to believe there’s no stopping equities unless and until US reals move back to those highs around 2.5% at minimum. 10-year reals are 1.85% currently - Bank of America

Week Ahead

The forthcoming week in the United States is expected to be dominated by the much-anticipated January CPI report, retail trade, industrial production, and Michigan's preliminary consumer sentiment for February. Headline inflation is predicted to drop to 3% in January, the lowest since June last year, while the core rate is anticipated to fall to a two-and-a-half-year low of 3.8%. Both headline and core rates are projected to remain steady at 0.2% and 0.3% respectively, on a month-over-month basis.

Retail trade growth is anticipated to slow to 0.1% in January, after a 0.6% jump in December, whereas industrial activity is expected to accelerate with a 0.3% rise. Furthermore, consumer confidence is predicted to reach its highest level since July 2021 in February.

Additionally, speeches by several Federal Reserve officials will be closely watched. Housing starts and building permits, producer and foreign trade prices, business inventories, homebuilder sentiment, overall capital flows, the government's monthly budget statement, and regional indicators such as the NY Empire State Manufacturing Index and Philadelphia Fed Manufacturing Index, will also be in focus.

In terms of earnings, notable companies including Arista Networks, Coca-Cola, Airbnb, Shopify, Cisco Systems, CME Group, The Kraft Heinz Co, Twilio, Applied Materials, Deere & Co, and Liberty Global are due to report their fourth-quarter results. (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	🔵	242.77	241.97	243.98	January 1, 2024
Forward 4-qtr PE	🔵	20.7	20.2	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.83	4.88	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	10.87	10.71	0.16	1.49%
SPX GEX Flip	🔵	4,877.5	4,837.5	40	0.83%
SPX Skew Adjusted GEX	🔴	-4,746,293,052	-3,044,788,701	-1,701,504,531	-55.88000000000001%
Equity Put/Call Ratio (CBOE)	🔴	0.48	0.62	-0.14	-22.58%
VIX Put/Call Ratio (CBOE)	🔴	0.37	0.9	-0.53	-58.89%
SPX/W Put/Call Ratio (CBOE)	🔵	1.45	1.3	0.15	11.54%

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 ended the day at a contract high of 5044.00 Friday, gaining 26.25. Across all maturities, the session saw a light 1,221,272 contracts change hands, with March volume coming in at 1,212,336. Combined open interest finished the session at a one month high of 2,368,690, higher by 32,916, or 1.41%. March open interest increased by 26,493 (1.16%), to 2,309,563.

The Feb E2C 4100 put saw the most action with 90,584 contracts changing hands. For March options, the 5050 calls had the highest volume with 4,915 done, and the most active put was the 4800 strike with 4,110 contracts traded. Option open interest is largest for the Feb EW3 100 calls at 24,257, and the Feb E2C 4100 puts at 91,762.

Implied Volatility ended the day slightly higher with the 30-day at-the-money up by 0.0317%, to settle at 10.41%. Historical volatility (30-day) ended the day at 10.83%, up 0.0499%, to a one week high. The volatility spread (30-day, IV-HV) ended at a one month low of -0.42%, having decreased 0.0183%.

Higher TF (W → D) BULLISH - February’s preliminary value area has been established above and beyond January, indicative of higher timeframe trend continuation. Pullbacks continue to be bought at LVN back-tests, resulting in day-timeframe higher lows (HLs); and momentum factors continue to support price action. All timeframes (quarterly, monthly, weekly, daily) remain synchronized in the upward direction. Higher timeframe buyers maintain control above the strong weekly low (WLO) of 4937.75 (-2.11%).

Lower TF (3H → M30) BULLISH - Market structure remains bullish within the lower timeframe context, and the ascent of value continues to confirm new highs. We will carry forward the last week’s RTH Departure Gap > 4978.25 as well as the untested 4964.50 → 4970.50 Demand Zone (purple and green shaded, respectively, on Pane 3), above which the auction remains in control of buyers. The cessation of both WTF 1TFU and recapture of negative GEX on a closing basis would signal a change of lower timeframe structure.

Bull v Bear

This Week (30d ATM IV 10.41% v 30d HV 10.83%)
Bulls will seek to extend WTF 1TFU and establish price acceptance above WHI 5048.50 on a closing basis. Upside: 5100 (+1.11%) is well within +1σ (W) 5121.00 (+1.53%).
Bears will seek to recapture DTF 1TFD and recapture negative GEX below 4970 (-1.46%) on a closing basis. Downside: WLO 4937.75 (-2.11%) is beyond -1σ (W) 4960 (-1.49%).

Last Week (5044.00 MAR24 +1.28%)
Bulls will seek to extend WTF 1TFU and establish price acceptance above 5000. Upside: 5013.75 (61.8%) breakout extension is well within +1σ (W) 5062.00 (+1.64%).
~~Bears will seek to recapture DTF 1TFD and recapture negative GEX below 4900 on a closing basis. Downside: WLO 4866 (-2.29%)is~~ ~~beyond~~ ~~-1σ (W) 4900 (-1.61%).~~

Indicators

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Volatility

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