Week of Aug 04 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Sentiment

The market is at a critical juncture. The initial rotation out of growth stocks into cyclicals has now given way to broader concerns about economic health. The sharp drop in Treasury yields indicates growing expectations of economic weakness and potential future rate cuts. The key for investors will be to determine whether this is a temporary slowdown or the beginning of a more significant economic downturn. The upcoming economic data, particularly the ISM services index and the Senior Loan Officers' Survey, could provide crucial insights into the state of the broader economy and credit conditions.

Fed speeches will also be important to watch, as they may give clues about how the central bank is interpreting recent data and whether they're considering changes to their policy stance.

Potential Scenarios:

If upcoming data continues to show weakness, it could reinforce recession fears and lead to further market declines.
However, if data shows resilience, especially in the services sector, it could alleviate some concerns and potentially create a buying opportunity.
The earnings reports will also be crucial in assessing corporate health and outlook, which could influence market direction.

Overall, this situation calls for careful monitoring of incoming data and a readiness to adjust strategies based on how the economic narrative evolves. The potential for both further downside and a buying opportunity highlights the importance of staying nimble in the current environment. — Claude 3 Opus (Sources: Yardeni Research, Bank of America, Goldman Sachs, LSEG, Nomura, Oppenheimer)

10-year US yields fell the most since Lehman. Futures markets priced in more than ~120bps of cuts by year-end, and it’s difficult not to interpret this as an overextended move. A lot of the Friday pandemonium was a combination of short convexity and the optics from the Sahm rule being triggered — JonesTrading

The VIX rose the most since January 2022, and VVIX the most since June of 2020. Realized vol has expanded meaningfully into the suddenly wider distribution of spot outcomes. On our estimates, vol control strategies sold nearly $84b of US equities futures over the two weeks on rVol reset — Nomura

This week’s data do not suggest a rush for the Fed to cut rates aggressively, and the market meanwhile has seemingly overpriced rate cuts. But in the near-term, It might be hard to fade the risk-off sentiment given rising geopolitical risks, volatility equities and a stronger yen — SocGen

Week Ahead

Wall Street is cautious as the Nasdaq Composite recently entered correction territory. Concerns have shifted rapidly, with fears that the Federal Reserve may have tightened the economy too much without easing policy soon enough. The latest nonfarm payrolls report has heightened recession worries, making upcoming economic data crucial.

On Monday, attention will focus on the U.S. services sector, particularly employment and prices. The Fed's Senior Loan Officer Opinion Survey will provide insights into credit conditions, and Thursday's initial jobless claims report will be closely watched following the July jobs report.

While the second quarter earnings season is winding down, notable companies like Walt Disney, Caterpillar, Tyson Foods, Uber, and Airbnb are still set to report — 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	🔴	259.51	259.84	243.98	January 1, 2024
Forward 4-qtr PE	🔵	21	20.8	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.76	4.81	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	19.04	14.06	4.98	35.42%
SPX GEX Flip	🔴	5,346.54	5,537.5	-190.96	-3.45%
SPX Skew Adjusted GEX	🔴	-23,122,010,162	-5,822,826,593	-17,299,183,569	-297.09%
Equity Put/Call Ratio	🔵	0.81	0.73	0.08	10.96%
VIX Put/Call Ratio	🔵	0.76	0.63	0.13	20.63%
SPX/W Put/Call Ratio	🔵	1.96	1.43	0.53	37.06%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

Sep E-mini S&P 500 futures closed at a one month low of 5376.00 Friday, off 104.25 (1.90%). Total volume came in at a one month high of 3,252,578, with the Sep contract seeing a heavy 3,239,738 change hands. Combined open interest lost 9,010 (0.44%) to end the session with 2,034,636 outstanding. The Sep maturity fell by 0.57%, or 9,010, to finish at 2,007,533.

Option trading centered around the August E1A 5450 calls with 11,952 traded and the August E1A 4500 puts with volume of 68,793. High volumes in Sep option trading were seen in the 5500 calls (9,394) and the 4800 puts (14,514). Calls with the most open interest are the Sep 5500 strike (30,887), and for the puts are the August E1A 4500 strike (63,683).

As measured by the 30-day at-the-money, implied volatility closed sharply higher, adding 3.04% to finish the session at a twelve month high of 18.97%. Adding 1.12% to a one month high, historical volatility (as measured by the 30-day) finished at 14.30%. As it increased 1.93% to a one month high, the spread between the 30-day constant maturity implied and the 30-day historical volatilities closed the day at 4.68%. As measured by the 30-day, the 25-delta Risk Reversal closed the session sharply down, losing 2.31% to finish at a twelve year low of -5.69%

Higher TF (W → D) NEUTRAL - Higher timeframe bullish structure remains intact above the April correction HL 4963.50 (-7.67%) now cleared by the still rising 200d MA 5089 (-5.34%). That said, the -6% pullback has breached the 50d MA and concentrated 5500 strike (+2.31%) causing a deep retest of the June breakout range. Notice that WLO coincides with the top of the Q224 value area: 5100→ 5375. Responsive buyers will seek to absorb probes back into this range to avoid continuation below the 5205.50 HL (-3.17%). Meanwhile, the higher timeframe trend has paused until reclamation of WTF 1TFU > 5600.75 (+4.18%).

Lower TF (4H → M30) BEARISH - The breakdown below July’s value area has caused a sweep of the entire June value area. Notice the rejection at WHI coincides with the closely monitored 5588 June VAH; prior support has become new resistance as the saying goes. Conversely, WLO was rejected below June’s VAL 5365, and closed back within the VA at the margin. This suggests that interim consolidation, once underway will continue to fill poor structure (LVN) still apparent in June’s VA. The first indication of relief will be sustained bid > 5433 BOS, but lower timeframe sellers will likely be responsive on a retest of the hard fought 5502.75 Axis Line.

Bull v Bear

This Week: 30d ATM IV 18.97% v 30d HV 14.30% +4.67%
Bulls will seek to recapture and establish acceptance above the structural break at 5433 on a closing basis. Upside: 50d MA 5511 (+2.51%) is within +1σ (W) 5527.00 (+2.81%).
Bears will seek to offer below the WLO 5331.75 and extend 1TFD on a closing basis. Downside: HL 5205.50 (-3.17%) is beyond -1σ (W) 5233 (-2.66%), but within -2σ (W) 5091.50 (-5.29%)

Last Week: 5376.00 SEP24 -2.56%
Bulls will seek to recapture DTF 1TFU on a closing basis. Upside: Positive GEX transition > 5577 → 5588 is within +1σ (W) 5606.50 (+1.95%).
Bears will seek to offer below the (poor) WLO 5432.50 and extend 1TFD on a closing basis. Downside: TR HI 5208.50 →5398.50 is within -1σ (W) 5395 (-1.88%).

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