Week of Apr 09 2023

Market Wrap

EOW 14 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 2.8% 3990.1 → 4219.9)

VX Surface - RVOL Spreads - VVIX / VIX Ratio - Trailing 12mo

Narratives

The market narrative has shifted dramatically (again) back towards US recession fears after a string of slightly softer data. To us, it feels like early February (again), with the market narrative a bit out-of-step with, or at least over-extrapolating from, the data itself. Quantitatively, none of our metrics are flashing red. Qualitatively, the market reaction to the ISM Services report had the marks of “imminent recession” while the respondents indicated anything but that. And while one can pick out aspects of the March employment report that have slowed a bit, it is still the case that the US economy added over a million jobs in Q1. Pre-pandemic, that had not happened over any three-month period since 1997 — Kamakshya Trivedi, Goldman Sachs

The March data showed the smallest private-NFP gain since the series dropped -258k in December 2020, average hourly earnings came in at the lowest yearly pace since June 2021 (with the three-month average monthly gain at just +0.26%) and the labor force participation rate is back to March 2020 levels - BMO

What’s noteworthy about the data released thus far is the breadth of expectations misses. By no means were these readings the end of the world and some have been more noteworthy than others, but most readings are misses and uniformly point to a decelerating US economy - JonesTrading

Since January, commercial bank deposits have fallen $593 billion. We see scope for additional outflows: $1.5 - $2 trillion more outflows would need to happen to normalize deposits to pre-Covid trend levels. Meanwhile $105b drop in bank lending following SVBs collapse was the largest (2wk) decline ever - Barclays

Week Ahead

In the US, the Bureau of Labor Statistics' consumer and producer price indexes will fuel the debate on whether inflation has peaked, or if it could still surprise on the upside. Headline inflation likely rose 0.3% month-on-month in March, pushing the annual rate down to 5.2% from 6%. Meanwhile, core inflation probably increased 0.3% over the previous month, resulting in the annual rate remaining at 5.6%.

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Economic (UTC-4)

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Earnings

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 12-mo Estimate	🔵	226.64	220.49	230.43	September 30, 2022
Forward 12-mo PE	🔴	18.1	18.9	15.5	September 30, 2022
Nominal Earnings Yield	🔵	5.52	5.37	6.43	September 30, 2022

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	⚪️	16.5	16.4	0.1	0.61%
SPX GEX Flip	⚪️	4,077.5	4,047.5	30	0.74%
SPX Skew Adjusted GEX	🔴	3,862,863,589	4,801,501,191	-938,637,602	-19.55%
Total Put/Call Ratio (CBOE)	⚪️	1	1.04	-0.04	-3.85%
Equity Put/Call Ratio (CBOE)	🔵	0.69	0.59	0.1	16.95%
VIX Put/Call Ratio (CBOE)	🔴	0.27	0.49	-0.22	-44.9%

SPX Net Skew-Adjusted Gamma by Strike - @tradevolatility

SPX Skew-Adjusted GEX Trend - @tradevolatility

VIX Net Skew-Adjusted Gamma by Strike - @tradevolatility

VIX Skew-Adjusted GEX Trend - @tradevolatility

Futures

June E-mini S&P 500 futures settled at 4132.00 Friday, unchanged on the session. Combined volume was a light 73,575, with June seeing 73,009 done. Total open interest lost 783 (0.0351%) to 2,231,463. June decreased 797, or 0.0360%, finishing at 2,213,952.

Option volumes were largest for the April E2B 4230 call (2,522) and the April E2A 3875 put (3,632). For April options, the 4200 calls had the high volume with 745 done, and the most active put was the 3900 strike with 1,819 contracts traded. Options with the largest open interest are the June EW3 100 call with 25,185, and the April E2A 3420 put with 35,851.

Implied Volatility ended the session slightly higher with the 30-day at-the-money adding 0.13%, to settle at 16.57%. Historical volatility (30-day) finished the day at 16.80%, lower by 0.0043%, to a one week low. As measured by the 30-day, the 25-delta Risk Reversal closed slightly down, dropping 0.0362% to settle at -4.33%.

Larger TF (COVID LO → Present) NEUTRAL - Last week, the third retest of Q322 PB HI 4175 (the high of TR 3820 → 4175) occurred with declining volume and momentum. Rejection off this level creates the potential for continued range-bound price action on the LTF between 3820 → 4175 (+/- 4.5%). Conversely, a breakout above this level opens the gate to incrementally establishing price acceptance from 4200 to 4300 (+1.65% to +4.07%). Initiative buyers remain in control above the Q1 VAH 4089.25 (-1.03%) pivot point.

Intermediate TF (2022 → Present) NEUTRAL - We continue to observe a multi-month balance. WLO 4096.50 (above circled) coincided with an exact retest of the balance VAH, and responsive bid confirmed control of buyers. The WLO not only retested the MAR PB HI 4082.50 breakout, but also reduced extreme overbought conditions highlighted last week. The ITF price action remains positive at the margin above 4082.50 (-1.2%), but risks deeper back and filling if initiative buyers fail to clear and develop price acceptance above MAR HI 4142.50 → WHI 4175.75 (+0.96%).

Short TF (2023 → Present) BULLISH - The shorter timeframe uptrend channel is being supported by a positive gamma exposure (GEX) regime, which extended its "WTF 1TFU" configuration (WHI > WHI.1) before pulling back and finding responsive bids at the trailing two-week volume weighted average price (VWAP). The ending price action can be seen as interim consolidation. The trend remains constructive above the 4100 level, with the path of least resistance leading back to a retest of the year-to-date (February) high of 4208.50 (+1.85%) and within +1σ of the upcoming expected weekly range.

30m RTH (March → Present) BULLISH - The volume of 0DTE options has coincided with more prominent Regular Trading Hours (RTH) price action in futures during 2023. Note the trailing 5-day profile highlighted above from (last) Friday to Thursday: price acceptance has formed above the 4082.50 MAR Breakout level. Furthermore, Thursday's "lower low" (and WLO) was rejected leading to an Outside Day (reversal) that retraced the 5-day Value Area. Structural repair opportunity remains below, but shorter timeframe sellers failed to attract momentum and were ultimately trapped and squeezed.

Bull v Bear

This Week (30d ATM 16.57% v16.19% p)
Bulls will seek to recapture the MAR HI 4142.50 and ideally gain price acceptance > WHI 4171.75 (+0.96%). Upside: 4200 (+1.65%); YTD HI 4208.50 (+1.85%) are within +1σ (W) 4223 (+2.2%).
Bears will seek to trigger cessation of Weekly and Daily 1TFU below WLO 4096.50 (-0.86%) on a closing basis. Downside: Recapture Mar Breakout 4082.50 (-1.2%) is within -1σ (W) 4045 (-2.11%).

Last Week (4132.00 JUN23 -0.14%)
Bulls will seek to extend 1TFU and maintain price acceptance > Friday’s POC 4117 (-0.49%). Upside: 2022 Midpoint 4155.25 (+0.42%); Q322 PB HI 4175 (+0.9%); 4200 (+1.5%); YTD HI 4208.50 (+1.71%) are within within +1σ (W) 4230.75 (+2.25%).
Bears will seek to contain momentum within ≤ Q1 HI 4208.50 (+1.71%) and ideally break the Daily 1TFU configuration < 4088.50 (-1.19%). Downside: WPOC 4080 (-1.4%); 50d MA 4050 (-2.12%) are within -1σ (W) 4049 (-2.14%).

Indicators

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Markets

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Positioning

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Sentiment

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Volatility

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Disclaimer

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Sources