Week of Feb 18 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

Yields reached their highs for the year following the hot US CPI print and the market continues to reduce the amount of cuts expected this year but we see the current dip as a buying opportunity. While the last mile of disinflation will be bumpy, further central bank hikes are unlikely and the medium-term trend should be towards lower yields — Subadra Rajappa (owner of house rates call), SocGen

Our central case remains that equity upside is limited from here, constrained by the fact that investors’ equity allocation globally is approaching the post-Lehman high seen in early 2015. At the same time, we recognize that a further increase in equity allocations to the previous 2007 cycle peak is neither an unlikely scenario nor an unreasonable assumption - JPMorgan

The above visual was published on February 13, a few hours before the January CPI release. Just 4% of respondents in the poll expected higher short-term rates over the next 12 months and a mere 7% expected higher inflation. Suffice to say if we haven’t seen the cycle highs for Fed funds, it’s going to come as one helluva surprise for the vast majority of market participants - Bank of America

Stocks were this week’s flows winner, with IG credit a close second. High-grade bonds have seen four months of uninterrupted inflows. If you annualize the YTD figures, you’re left to ponder what’d be a half-trillion year for IG fund inflows, double the record. Tech-focused equity funds are likewise on track for a banner year, not surprising given the narrative driving stocks to fresh records - Bank of America

Week Ahead

In the US, the Federal Open Market Committee (FOMC) meeting minutes due on Wednesday will provide insights into the potential timing of future interest rate cuts by the Federal Reserve, supplemented by comments from various Fed officials. Meanwhile, the data front will focus on the preliminary S&P Global PMIs, expected to indicate a slight slowdown in both manufacturing and services sectors. Other significant releases include existing home sales data, the Chicago Fed National Activity Index, and weekly jobless claims. Companies such as Home Depot, Walmart, Etsy, NVIDIA, Moderna, and Berkshire Hathaway are set to announce their quarterly 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	🔴	242.57	242.77	243.98	January 1, 2024
Forward 4-qtr PE	🔴	20.6	20.7	20.16	January 1, 2024
Nominal Earnings Yield	🔵	4.85	4.83	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	11.36	10.87	0.49	4.51%
SPX GEX Flip	🔵	4,977.5	4,877.5	100	2.05%
SPX Skew Adjusted GEX	🔵	-758,800,286	-4,746,293,052	39,874,927,663	84.01%
Equity Put/Call Ratio (CBOE)	🔵	0.53	0.48	0.05	10.42%
VIX Put/Call Ratio (CBOE)	🔴	0.36	0.37	-0.01	-2.7%
SPX/W Put/Call Ratio (CBOE)	🔵	1.49	1.45	0.04	2.76%

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 lower with the March contract down 26.75 to 5019.75. Overall, 1,534,721 contracts were traded, with 1,527,729 done in March. Total open interest shed 7,249, or 0.31%, with March losing 9,344 (0.41%) to 2,271,661.

Option volumes were greatest for the Feb E3B 5260 call (13,522) and the Feb E3B 4225 put (49,393). Largest volumes in March option trading were seen in the 5050 calls (4,592) and the 3050 puts (5,764). Calls with the largest open interest are the March EW3 100 strike (13,901), and for the puts are the Feb EW 4800 strike (55,488).

Implied Volatility closed slightly up with the 30-day at-the-money adding 0.0723%, to finish the session at 11.32%. Gaining 0.22% to a one month high, historical volatility (as measured by the 30-day) finished at 12.25%. The 30-day volatility spread (IV-HV) decreased by 0.14% to close the session at a one month low of -0.93%.

Higher TF (W → D) BULLISH - WHI coincided with an approaching retest of the 2021 Demand Line, broken during the 2022 cycle and thereby forming ascending resistance on the higher timeframe trend channel. This level was last tested and rejected during Q322. Selling absorption was readily observable heading into Tuesday’s CPI catalyst, which resulted in a liquidation break sufficient to sweep the entire value area of February. That said, the higher timeframe market structure remains squarely bullish, and trend continuation will be confirmed by the continued ascent of March value. All timeframes (quarterly, monthly, weekly, daily) remain synchronized in the upward direction. Higher timeframe buyers remain in control > WLO of 4936.50 (-2.11%).

Lower TF (3H → M30) BULLISH - Lower timeframe market structure is on the cusp of signaling a LH that would confirm WLO as a vulnerable/weak LL. That said, a pullback phase would occur within an ascending triangle formation, which is indicative of bullish consolidation - perfectly normal given the recent ascent. The weak position of close however suggests unfinished business to the downside, and a retest of 5000 - coincidental with the midpoint of last week’s range and prominent SPX OI. Notice also the large untested demand zone between 4970 → 4990, the top of which coincides with the defense of constructive positive GEX. The loss of 4970 will signal a change in lower timeframe structure and risk cessation of the bullish WTF 1TFU configuration.

Bull v Bear

This Week (30d ATM IV 11.32% v 30d HV 12.25%)
Bulls will seek to extend WTF 1TFU and establish price acceptance above the absolute ATH 5066.50 on a closing basis. Upside: 5100 (+1.6%) remains within +1σ (W) 5105 (+1.70%).
Bears will seek to recapture DTF 1TFD and recapture negative GEX below 4992 (-0.55%) on a closing basis. Downside: WLO 4936.50 is coincidental with -1σ (W) 4937.50 (-1.64%).

Last Week (5019.75 MAR24 -0.48%)
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%).~~

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