Week of Nov 29 2020

Market Wrap

Equity Futures v. VIX - 5d

S&P 500 Sectors - 5d

FAAMG - 5d

Global Currencies - 5d

US Treasury Yields v. Corporate Credit - 5d

Commodities Futures v CRB Index - 5d

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Last Week's Bull vs Bear

Week Ahead

All eyes turn to US Fed Chair Powell's testimony before Congress next week, as well as the US jobs report due Friday, which will probably point to a further slowdown in the labor market recovery. Elsewhere, GDP data for Brazil, Australia, Turkey and Canada will be in the spotlight as well as worldwide manufacturing and services PMI surveys and monetary policy action by the RBA and RBI. Other releases include trade figures for the US and Canada, factory orders for the US and Germany, industrial output and retail sales for Japan and South Korea. Investors will also follow an OPEC+ meeting on Monday and Tuesday on hopes major oil producers would reach an agreement to delay a planned crude output increase in January.

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America

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Europe

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Asia

Narratives

Headed into December, one key part of the year-end melt-up thesis is that realized volatility will continue to grind lower, triggering mechanical re-leveraging from vol-sensitive investor cohorts. As our thesis for a post-election, post-vaccine implied vol compression continues unabated, the second-order impact on systematic vol control–type strategies will continue providing supportive buy flows in the coming days and weeks in the absence of another shock - Charlie McElligott - Nomura

Liquidity in the market remains frail: conditions never fully recovered from the VIX ETP implosion that unfolded during the week of February 5, 2018, and remain at the bottom of the range since the start of 2014. At current levels, markets are well inflated, while economies will need a few more months to absorb the second lockdown consequences. The path to normality is a long one, with bumps along the way, liquidity is most likely to become a topic of concern - SocGen

All the most recent crypto longs are offside as they converge around the Thanksgiving table In 2017 the Thanksgiving holiday boosted the mood because the latest joiners were all making rapid money and gaining confidence - it’s different this time around. Spillover concerns were also rampant during the last crypto bubble burst, but they were ultimately overshadowed by the implosion of the VIX ETP complex, an unrelated event. Bloomberg.

In Europe, economic sentiment fell for the first time in seven months, data out Friday showed. This comes amid fresh lockdowns which are expected to result in a double-dip recession, at least for some countries. The decline was fueled by diving confidence in retail trade, services and among consumers whilst sentiment in industry and construction held up rather well, posting comparatively mild deteriorations - ING

Earnings

US equities mostly higher in Friday trading as the major indexes posted a week of solid gains and the S&P 500 and Nasdaq ended at record levels today. Growth extended Wednesday's outperformance against value. FAANGs, semis, software, biotech, cruise(lines), precious metals miners among better performers. Banks, trucking, rails, parcels and logistics, integrated oils, REITS, utilities, tobacco, paper and packaging weaker. Treasuries firmer with the curve flattening. Dollar weaker against the euro and yen, with the dollar index extending recent weakness. Gold finished down 1.3%, settling below $1800/oz for the first time since 6-Jul. WTI crude down 0.6%, off worst levels and still posting a sizable weekly gain.

It was a very quiet session following the Thanksgiving holiday. COVID-related themes remained the key focus. Some of the concerns around the AZN vaccine and rising case counts and hospitalizations were offset by some positive commentary around the timing and speed of deploying a vaccine across the US population in the first half of 2021. Despite near-record case counts, there have been few updates around shutdowns or other mitigation measures, while the measures implemented continue to be narrowly targeted rather than the broad shutdowns that took place in the spring.

Other key themes mostly unchanged. Potential for fiscal policy action before inauguration ticked up in recent days, though nothing new on that front. A Janet Yellen-led Treasury also seen as a complement to Fed, with central bank tailwind still in focus given potential for changes in Fed asset purchase strategy as soon as December. Dollar weakness continues to get attention, while expectation for continued rotation trade toward value (despite pause in recent days), a batch of positive US data, a strong earnings season, and supportive positioning and sentiment among other factors in play this week.

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Earnings Metrics & FactSet Charts

S&P 500 Futures

Monthly Profiles (Full Session) - November has re-established 1TFU with range exceeding the prior 5 months. Last week retraced approximately half of the November VA and settled just above the October High. LTF references have provided fertile ground for "springs" throughout the recovery cycle. This week was no different as the reversal reclaimed the November VAH and closed less than 1% below the ATH (3688, W46-20).

Weekly Profiles (Full Session) - Despite last week's decisive breakdown, we cautioned that it was premature to presume a change of condition. We noted the (bullish) divergence of Weekly Value (WPOC), and the Inside Week formation being indicative of ITF balance. Initiative shorts appeared to cover this week (p-shape profile) which combined with reduced liquidity, increased ease of upward movement. Weekly Timeframe remains 1TFU and closed approximately to the W47-20 High (3637.00 vs. 3636.50 SETL).

4hr Bars (Full-session, Composite 6-weeks) - TR 3506.50 → 3576.75 is highlighted above. A case can be made for 3 multi-day balances having formed since; all of which are above the TR 3506.50 → 3576.75 midpoint. Chartists could zoom out further and combine all 4 balances into a composite "3-week Balance" and visualize a larger timeframe "bull flag". The point is, charts are not (directionally) predictive, but rather reflective; but they're useful in highlighting the likely anticipation(s) of price followers. Notice the steady decline in Implied Volatility throughout November; the LTF profile (Right Justified) is indicative of short-covering vs. new initiative buying (which can inadvertently weaken a market).

Bull vs Bear

Bulls will seek to maintain price acceptance above 3600 (-1%) and ideally break and hold last week's high 3655 (+0.51%) to set up a successful retest of the ATH 3668 (+0.87%). ITF bullish configuration above 3612.75 (-0.65%)

Bears will seek to defend last week's high and ideally retest and break 3600 (-1%). Bearish momentum would create the cause to rest the Monthly VPOC 3556.75 (-2.19%). ITF bearish configuration triggered on break of Axis Line 3590.00 (-1.28% & Gap Up #3).

Indicators

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Macro

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Sentiment

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Optix

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Volatility

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Breadth

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Disclaimer

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Sources