Week of Jun 18 2023

Market Wrap

EOW 24 - Benchmarks

SPX (D) - Trailing 12mo and +/- 1σ Expected Weekly Range (+/- 1.9% 4325.9 → 4493.5)

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

Narratives

Back in April of last year, the FOMC expected YoY core PCE to drop to 2.6% this year. At the time, it was 5%, today it is 4.7%. For all of the Fed’s tightening efforts, such little progress was made on core PCE over the course of a year. It was April 6, 2022, when former NY Fed President Dudley penned a Bloomberg Op-Ed titled “If Stocks Don’t Fall, the Fed Needs to Force Them.” Maybe Dudley was on to something, that financial conditions do matter. The Chairman and his FOMC colleagues tried to adapt with the environment. At the time they were expecting the Fed funds rate to peak at 2.75%, but today it is nearly double that level. There is a good chance the Fed’s balance sheet is a factor in the buoyancy. It remains 100% or $4 trillion above its already bloated pre-pandemic level. Its normalization progress halted in March with the regional bank failures. One way to look at the environment is that stocks, bonds, the Fed’s balance sheet and inflation have made no material progress over the past 13 months — Mike O’Rourke, JonesTrading

Our measure of aggregate equity positioning turned modestly overweight for the first time in over 16 months. The jump was largely driven by a sharp rise in discretionary investor positioning, which broke out of its one-year underweight range and went slightly above neutral, joining systematic strategies which got there a month ago - Deutsche Bank

At the new quarterly pace, a July hike would significantly raise the bar for a hike in September, making November the more likely candidate for the second hike the FOMC currently envisions. However, we expect substantial cooling by then, reducing the odds that the Fed would actually go through with the additional second hike - Goldman Sachs

For all the financial media focus on core measures, it is not a foregone conclusion that headline price growth is going to keep falling in our view. There are very real risks that a series of events conspire to create a run of 0.3% MoM increases, resulting in the YoY headline CPI prints easily inflecting upwards for the worse - Bank of America

Week Ahead

The economic calendar in the US is relatively light in the coming week. However, investors will closely monitor key speeches by several Federal Reserve policymakers to gauge the potential trajectory of monetary policy in the coming months. Additionally, Federal Reserve Chair Jerome Powell and his colleagues Lisa Cook and Philip N. Jefferson will testify before Congress. The US markets will be closed on June 19 in observance of the Juneteenth holiday.

Turning to economic data, the housing sector is expected to show a modest increase in both building permits and housing starts for the month of May. Investors will also follow June's flash S&P Global PMI figures, which are expected to show that growth in both the services and manufacturing sectors decelerated. Other indicators to follow include: homebuilder sentiment, existing home sales, Q1 current account, and the Chicago Fed National Activity Index - TradingEconomics

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Calendar (UTC-4)

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Major Economies

Earnings

Metric	UpDn	This Week	Prior Week	Baseline	Baseline TF
Forward 4-qtr Estimate	🔴	225.06	225.49	228.39	January 1, 2023
Forward 4-qtr PE	🔵	19.6	19	17.2	January 1, 2023
Nominal Earnings Yield	🔴	5.1	5.25	5.86	January 1, 2023

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔵	11.28	10.8	0.48	4.44%
SPX GEX Flip	🔵	4,292.5	4,197.5	95	2.26%
SPX Skew Adjusted GEX	🔴	5,664,564,062	19,208,610,489	-13,544,046,427	-70.51%
Equity Put/Call Ratio (CBOE)	🔴	0.46	0.5	-0.04	-8%
VIX Put/Call Ratio (CBOE)	🔵	0.68	0.64	0.04	6.25%
SPX/W Put/Call Ratio (CBOE)	🔵	1.45	1.28	0.17	13.28%
OEX Put/Call Ratio (CBOE)	🔴	2.53	4.8	-2.27	-47.29%

Net Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

E-mini S&P 500 futures were mostly lower Friday with the Sep contract finishing the session at 4453.75, off by 17.50. Overall, 1,936,989 contracts were traded, with 1,895,105 done in Sep. Total open interest decreased by 39,761, or 1.38%, to 2,850,373. Sep decreased 6,376 (0.29%), finishing at 2,210,290.

Option volumes were highest for the June E4D 100 call (18,250) and the June EW4 3400 put (21,495). In July options, the highest volume call was in the 4500 strike with 4,068 traded, and the 3500 put leads with volume of 4,363. Calls with the most open interest are the June E4D 100 strike (18,250), and for the puts are the June EW4 3400 strike (22,375).

Implied Volatility ended the day down with the 30-day at-the-money off by 0.46%, to finish the session at a one week low of 11.07%. Historical volatility (30-day) closed the day at 11.32%, losing 0.73%, to a twelve year low.

Longer TF (W → D ETH) BULLISH - Notable range extension further confirming the textbook multi-month breakout materialized in W24. The supportive 4287 JUN VPOC is below -2σ (W) 4315.50 (-3.12%), indicative of a substantial departure from value. A pullback phase once commenced could easily retrace the -2σ expected range, coincidental to the Departure Gap, owed to poor structure left in the wake of last week’s dominant one-way flow.

Shorter TF (M30 ETH → M5 RTH) NEUTRAL - A plausible capitulatory top was printed on Friday’s RTH open (above highlighted). The intraday reversal was confirmed by successive intraday Lower Highs (LH) and Break of Structure (BOS) at 4465, and followed by unsurprising responsive action as price retested Thursday’s POC into the close. The 4443.75 Midpoint (-0.22%) divides the premium vs. discount regions of a 100-handle Swing Structure (4393.75 → 4493.75).

Bull v Bear

This Week (30d ATM IV 11.07% v RVOL 11.32%)
Bulls will seek to recapture Friday’s POC 4475, and ideally establish price acceptance > 4500 (+1.04%). Upside: > 4550 (+2.16%) is above +1σ (W) 4525.50 (+1.61%).
Bears will seek to recapture Thursday’s 4439.50 BOS, and ideally 4400 (-1.21%) on a closing basis. Downside: < WLO 4348.75 (-2.36%) is below -1σ (W) expected 4384 (-1.57%).

Last Week (4353.75 SEP23 +2.41%)
Bulls will seek to defend Friday’s Value Area, and ideally extend the YTD HI 4369.50 on a closing basis. Upside: > 4400 (+1.19%) is within +1σ (W) 4419.50 (+1.65%).
~~Bears will seek to recapture Friday’s Pullback LO 4338.25 → 4327.50 on a closing basis. Downside: < 4300 (-1.13%) is~~ ~~within~~ ~~-1σ (W) expected 4280 (-1.59%).~~

Indicators

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