Market Wrap
Narratives
It’s possible that the poor seasonal will be brought forward into August. We also observe a short-term supply and demand mismatch between the VWAP corporate bid and systematic strat selling at the market creating an asymmetric flow-of-funds skew to the downside as we test key technical levels. Meanwhile, the proliferation of 0DTE options has made each day its own ecosystem - Scott Rubner, Goldman Sachs
Week Ahead
It's a very light week for US economic indicators. But the BIG event will occur on @August 25, 2023 when Fed Chair Jerome Powell will speak at the Fed's annual Jackson Hole Conference. He will undoubtedly say that the inflation rate remains too high above the Fed's 2.0% target. However, he will probably acknowledge that the CPI inflation rate has moderated significantly since last summer, especially excluding the shelter component, which is likely to fall in coming months (chart). He is also likely to reiterate that the target is meant to be achieved by 2025 not this year or even next year.
The big question is whether Powell will try to calm the bond market. The 10-year Treasury yield is back to last year's high of 4.25%. If it keeps moving higher, defaults will increase especially in commercial real estate mortgages. Powell could say that if inflation continues to moderate, the Fed might have to lower the federal funds rate next year so that monetary policy doesn't get even more restrictive.
Meanwhile, the 30-year mortgage rate rose to 7.71% on Thursday. Mortgage applications to purchase a home are continuing to fall, suggesting that the sum of existing @August 22, 2023 plus new @August 23, 2023 single-family home sales fell during July.
We are expecting that August's Richmond @August 22, 2023 and Kansas City @August 24, 2023 regional business surveys will confirm last week's NY and Philly surveys suggesting that manufacturing may be bottoming - Yardeni Research
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Earnings
Metric | UpDn | This Week | Prior Week | Baseline | Baseline TF |
---|---|---|---|---|---|
Forward 4-qtr Estimate | 🔵 | 231.73 | 231.67 | 228.39 | January 1, 2023 |
Forward 4-qtr PE | 🔴 | 18.8 | 19.3 | 17.2 | January 1, 2023 |
Nominal Earnings Yield | 🔵 | 5.3 | 5.19 | 5.86 | January 1, 2023 |
Options
Metric | UpDn | This Week | Prior Week | Net CHG | % CHG |
---|---|---|---|---|---|
SPX Implied Volatility | 🔵 | 14.35 | 13.42 | 0.93 | 6.93% |
SPX GEX Flip | 🔴 | 4,472.5 | 4,502.5 | -30 | -0.67% |
SPX Skew Adjusted GEX | 🔴 | -25,358,279,281 | -12,869,841,511 | -12,488,437,770 | -97.04% |
Equity Put/Call Ratio (CBOE) | 🔴 | 0.76 | 0.8 | -0.04 | -5% |
VIX Put/Call Ratio (CBOE) | 🔵 | 0.77 | 0.39 | 0.38 | 97.44% |
SPX/W Put/Call Ratio (CBOE) | 🔵 | 1.62 | 1.43 | 0.19 | 13.29% |
Futures
Sep E-mini S&P 500 futures finished the session at a one month low of 4382.75 Friday, dropping 1.75. Across all maturities, the session saw 1,752,145 contracts change hands, with Sep volume coming in at 1,746,289. Overall open interest decreased 7,093, or 0.31%, with Sep lower by 6,591 (0.30%) to 2,217,252.
Option volumes were highest for the August E3A 4400 call (7,954) and the August E3A 3725 put (121,942). For Sep options, the 4600 calls were the most active with 5,071 done, and the high volume put was the 4300 strike with 8,139 contracts changing hands. Option open interest is largest for the Sep 4700 calls at 16,683, and the August E3A 3725 puts at 122,768.
As measured by the 30-day at-the-money, implied volatility closed moderately down, losing 0.83% to finish at 14.45%. The 30-day historical volatility ended the day lower by 0.0248% to 9.82%.
Bull v Bear
This Week (30d ATM IV 14.45% v 30d RVOL 9.82%)Bulls will seek to recapture 4436.75 LH on a closing basis. Upside: WVAH 4463.25 (+1.83%). 50d MA 4484 (2.3%) is marginally above +1σ (W) 4473 (+2.06%).Bears will seek to further extend 1TFD < WLO 4350(-0.75%) and target the 4305.75 Departure Gap. Downside: < 4300 (-1.89%) is within -1σ (W) 4296 (-1.98%).
Last Week (4382.75 SEP23 -2.24%)Bulls will seek to recapture 4500, and ideally WVAH 4514.50 on a closing basis. Upside: GEX Flip 4526 (1%); WHI 4544.75 (1.42%) arewithin+1σ (W) 4560 (+1.77%).Bears will seek to further extend 1TFD < WLO 4459 (-0.49%) and 50d MA on a closing basis. Downside: Put Wall 4416 (-1.45%) is within -1σ (W) 4404 (-1.71%)..
Indicators
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