Week of Feb 25 2024

Market Wrap

Weekly Benchmarks - @Koyfin

Weekly Factors vs. S&P 500 - @Koyfin

Weekly Performance - @Koyfin

Narratives

The goldilocks with easing thesis, alongside the AI frenzy has flipped the script on dealer positioning. Dealers would typically be short downside to hedgers and long upside from overwriters, whereas now, amid little to no demand for downside and call-buying to account for perpetual fear of a melt-up, clients are selling puts not just for income, but to fund cheap convexity into calls. Collectively, dealers are consistently short upside gamma and grabbing delta to hedge into a never-ending melt-up in index, with the rally ironically too being fed by overwriters who are consistently being stopped-into their short strikes from the calls they’ve previously sold for income. All together, those dynamics have fueled spot index to levels which were inconceivable just a month and a half ago — Charlie McElligott, Nomura

During the past three months, Magnificent 7 earnings estimates have been revised upwards by 7% and margins have been revised upwards by 86bps compared with a 3% downward revision to earnings and 30bps downward revision to margins for the remaining 493 stocks - Goldman Sachs

Stimulus and a hot labor market meant a four-year recovery in US consumption from the COVID lows that was the fastest since 1945. By contrast, the much-hyped capex recovery ranks just seventh out of 12 recoveries since WW2, and housing is one of the worst of all time - Bank of America

Dealers are consistently short upside gamma and grabbing delta to hedge into a never-ending melt-up in index, with the rally ironically too being fed by overwriters who are consistently being stopped-into their short strikes from the calls they’ve previously sold for income - Nomura

Week Ahead

In the United States, investors are turning their attention back to a busy economic calendar, along with several speeches by Federal Reserve policymakers. Key data points to watch include the PCE price indexes, personal income and outlays, the ISM Manufacturing PMI, and durable goods orders.

Forecasts predict a 0.3% rise in PCE prices for January, a slight increase from the 0.2% gain seen in December. Core prices are expected to rise at a faster pace of 0.4%. The report is also anticipated to show a 0.3% increase in consumer spending and a 0.5% increase in income.

Furthermore, the ISM survey is likely to show continued contraction in the manufacturing sector throughout February, while durable goods orders are predicted to have dropped by 4.5% in January, after remaining unchanged in December.

Investors will also pay close attention to the second estimate of fourth-quarter GDP data, new and pending home sales, Case-Shiller home prices, Chicago PMI, Dallas Fed Manufacturing Index, and advance estimates of wholesale sales and the goods trade balance.

Finally, earnings season is wrapping up with Workday, Lowe's, American Tower, AMC, HP, Salesforce, TJX Companies, and Dell scheduled to report. (Source: 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	🔵	242.76	242.57	243.98	January 1, 2024
Forward 4-qtr PE	🔵	21	20.6	20.16	January 1, 2024
Nominal Earnings Yield	🔴	4.77	4.85	5.19	January 1, 2024

Options

Metric	UpDn	This Week	Prior Week	Net CHG	% CHG
SPX Implied Volatility	🔴	11.19	11.36	-0.17	-1.5%
SPX GEX Flip	🔵	4,992.5	4,977.5	15	0.3%
SPX Skew Adjusted GEX	🔴	-3,832,654,016	-758,800,286	-3,073,853,730	-405.09%
Equity Put/Call Ratio	🔵	0.66	0.53	0.13	24.53%
VIX Put/Call Ratio	🔵	0.66	0.36	0.3	83.33%
SPX/W Put/Call Ratio	🔴	1.34	1.49	-0.15	-10.07%

Skew-Adjusted Gamma by Strike - @tradevolatility

Skew-Adjusted GEX Trend - @tradevolatility

Implied Volatility Trend - @tradevolatility

Put/Call OI Trend - @tradevolatility

Futures

March E-mini S&P 500 futures settled at a contract high of 5101.50 Friday, up by 3.75. Across all maturities, volume was 1,347,830, with March seeing 1,340,050 done. Total open interest increased by 10,233, or 0.43%, to end the session with 2,362,705 outstanding. The March maturity added 0.29% (10,233) to finish at 2,283,799.

The Feb E4A 4125 put saw the most traded with 72,835 contracts changing hands. Options with the greatest open interest are the April EW3 5350 call with 124,343, and the Feb E4A 4125 put with 72,858.

As measured by the 30-day at-the-money, implied volatility finished lower, dropping 0.55% to close at a one week low of 11.23%. Dropping by 0.0295%, historical volatility (as measured by the 30-day) finished the session at 13.02%. The volatility spread (30-day, IV-HV) closed at a one month low of -1.79%, having fell 0.5228%.

Higher TF (W → D) BULLISH - The higher timeframe market structure remains squarely bullish, but trend continuation must be confirmed by the continued ascent of March value. All timeframes (quarterly, monthly, weekly, daily) remain synchronized in the upward direction towards the 5163.50 PO (+1.22%). Higher timeframe buyers remain in control > WLO of 4959.00 (-2.79%). That said, price action is trading above February and Q1 value, which if unconfirmed by forthcoming March value will increase the risk of an eventual pullback that retests the naked February VPOC 4975 → 5000 high gamma strike.

Lower TF (3H → M30) NEUTRAL - The lower timeframe generated a reversal setup at Friday’s WHI, to be signaled on a breakdown below the weak RTH LO 5092.50. If signaled, it would merely indicate the start of a higher timeframe pullback phase, prone to become responsive at the 5070 Demand Zone. Loss of 5070 risks 5041.25 → 5050, coincidental with last week’s breakout departure gap. Conversely, the above setup is invalidated if we quickly bid back above Friday’s VAH 5110.50, which would instead indicate continuation that aligns to higher timeframe market structure.

Bull v Bear

This Week (30d ATM IV 11.23% v 30d HV 13.02%)
Bulls will seek to extend WTF 1TFU and establish price acceptance above the ATH 5123.50 on a closing basis. Upside: 5163.50 (+1.22%) is within +1σ (W) 5185 (+1.64%).
Bears will seek to recapture DTF 1TFD and ideally < 5070 demand on a closing basis. Downside: WVPOC.1 (naked) 5043.50 (-1.09%) is within -1σ (W) 5021.00 (-1.58%).

Last Week (5101.50 MAR24 +1.63%)
Bulls will seek to extend WTF 1TFU and establish price acceptance above the absolute ATH 5066.50 on a closing basis. Upside: 5100 (+1.6%) remains within +1σ (W) 5105 (+1.70%).
~~Bears will seek to recapture DTF 1TFD and recapture negative GEX below 4992 (-0.55%) on a closing basis. Downside: WLO 4936.50 is~~ ~~coincidental~~ ~~with~~ ~~-1σ (W) 4937.50 (-1.64%).~~

Indicators

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Sources