Week of Apr 21 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

The Fed secured an own-goal via a self-induced, premature easing in financial conditions through their embrace of the insurance cuts path before inflation was fully put away which, in conjunction with persistent fiscal largesse from the government, has seen the market-implied probabilities of a phase-shift into an economically unstable no landing scenario pick up delta in recent weeks. Based on renewed demand for hedges, at least some market participants do get it. The threat of this no landing backdrop, and the growing perception of a Fed policy error by loss of inflation-fighting credibility — especially with nothing but fiscal dominance ahead in the US regardless of who wins the election — has recently helped to bid-up demand for downside as tails have gotten fatter. No landings end in hard landings — Charlie McElligott, Nomura

The post-VIX expiration trade has seen US equities index iVol, skew and vol-of-vol stay far stickier than expected. For now, short vol flows are being offset by unusually persistent demand for downside hedges. Part of that’s exposure builds: People finally have something to hedge. Part of it’s the gap risk from incessant Mideast escalations - Nomura

The perceived odds of rekindled inflation rose sharply in recent weeks. Q1’s good news is good news regime has morphed into a good news is bad news dynamic vis-à-vis macro overshoots and the read-through for the Fed trajectory. It’s possible that a “bad news is bad news” regime isn’t too far off, in which case the trade would be long bonds and short stocks - Bank of America

A lot of people like commodities in 2024, and particularly energy. Professional investors upped their allocation by 20ppt and are now a net 11% overweight commodities, the most on record in April. Needless to say, investors’ interest in commodities may have as much to do with inflation as it does geopolitics. An aversion to bonds speaks to that - Bank of America

Week Ahead

The market will focus on earnings reports from Meta, Microsoft, Google, and Amazon, among others. There will also be a PMI update for the US and other major economies on Tuesday, followed by US Q1 GDP on Wednesday and PCE inflation, income, and spending on Friday. Other noteworthy events include a PBoC policy decision on Monday and speeches from several key central bankers.

Economically, the US GDP growth rate for Q1 is projected at 2.1%, down from 3.4% in Q4. Both core and headline PCE inflation rates for March are anticipated to be 0.3%, consistent with the previous month. Personal income is expected to have increased by 0.5%, while personal spending growth is predicted to have decelerated to 0.3% from 0.8% in the previous month.

Other indicators to look out for include durable goods orders, flash S&P Global PMI survey results, new and pending home sales, the Chicago Fed National Activity Index, advance estimates of wholesale sales and goods trade balance, and the final reading of the Michigan consumer sentiment. (Source: Longview Economics)

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Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔵	252.51	252.21	243.98	January 1, 2024
Forward 4-qtr PE	⚪️	19.9	19.9	20.16	January 1, 2024
Nominal Earnings Yield	⚪️	5	5	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	15.5	14.52	0.98	6.75%
SPX GEX Flip	🔴	5,112.5	5,123.41	-10.91	-0.21%
SPX Skew Adjusted GEX	🔵	-3,684,806,070	-4,892,426,884	1,207,620,814	24.68%
Equity Put/Call Ratio	🔴	0.65	0.68	-0.03	-4.41%
VIX Put/Call Ratio	🔵	0.66	0.42	0.24	57.14%
SPX/W Put/Call Ratio	⚪️	1.44	1.44	0	0%

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 finished the day at a one month low of 5003.75 Friday, losing 45.25. Combined volume was a heavy 2,361,073, with the June contract seeing 2,357,143 change hands. Total open interest increased 6,281, or 0.30%, to 2,106,535. June rose by 6,420 (0.31%), finishing at 2,084,096.

Option volumes were highest for the April E4A 5100 call (20,456) and the April E4A 4200 put (64,470). High volumes in May option trading were seen in the 5100 calls (2,386) and the 4900 puts (8,219). Options with the most open interest are the May EW3 5400 call with 55,462, and the April E4A 4200 put with 73,688.

As measured by the 30-day at-the-money, implied volatility closed slightly lower, off by 0.0386% to end the session at a one week low of 15.65%. The 30-day historical volatility closed the day adding 0.15% to 10.96%.

Higher TF (W → D) NEUTRAL - The lower timeframe downtrend has facilitated a higher timeframe pullback approaching correction thresholds, notably mitigating the naked February VPOC. The orderly nature of the selloff, cessation of modest VIX backwardation, and divergence in value factors suggest a rotation from large-cap growth rather than outright panic. Sellers maintain control below the newly established FVG (5123.25 → 5150), which unsurprisingly aligns with +GEX transition and the closely watched 50d MA. The next higher timeframe FVG below is defended by the February LO 4972.50 (-2.62%), which coincides with Q1 VAL, and is likely to be responsive.

Lower TF (3H → M30) BEARISH - The lower timeframe downtrend has broadened its range, and respected the prominent 5123.25 → 5150 Departure Gap. Put dominated price action remained orderly until the news-driven selloff on the eve of April options expiration. The after-hours liquidation set an excess low exactly at the naked February VPOC, but the ensuing covering rally was rejected from and closed below the weekly value area on Friday. This keeps downside vulnerability intact. If price can re-establish acceptance inside the value area, the top of the range, which coincides with the Departure Gap base, can be re-targeted. If not, the odds favor downside continuation < WLO 4963.50 (-0.8%).

Bull v Bear

This Week (30d ATM IV 15.65% v 30d HV 10.96%)
Bulls will seek to establish price acceptance > WVAL 5038.50 and ideally recapture DTF 1TFU on a closing basis. Upside: WVAH 5120 is beyond +1σ (W) 5116 (+2.24%).
Bears will seek to extend WTF 1TFD < WLO 4963.50 and ideally maintain DTF 1FD on a closing basis. Downside: FEB LO 4872.50 (-2.62%) is just beyond -1σ (W) 4896 (-2.14%).

Last Week (5003.75 JUN24 -3.17%)
~~Bulls will seek to recapture Thursday’s local high 5257.50 and positive GEX on a closing basis. Upside: WHI 5285 (+2.27%) is~~ ~~beyond~~ ~~+1σ (W) 5274 (+2.06%).~~
Bears will seek to extend the correction < WLO 5150 and 50d MA on a closing basis. Downside: MAR VAL 5095.25 (-1.4%) is within -1σ (W) 5061.00 (-2.06%).

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