#SP500 LDN TRADING UPDATE 13/01/25
WEEKLY BULL BEAR ZONE 5905/15
WEEKLY RANGE RES 5983 SUP 5745
DAILY BULL BEAR ZONE 5864/74
DAILY RANGE RES 5903 RANGE SUP 5819
WEEKLY ACTION AREAS & PRICE OBJECTIVE VIDEO TO FOLLOW AHEAD OF NY OPEN
GOLDMAN SACHS TRADING DESK VIEWS
Last week was quite challenging, with RTY down 3.5%, NDX down 2.2%, and SPX down 1.9%. Meanwhile, the US 10YR yield increased by 16bps to 4.76%, and crude oil rose by 3.7% to $76.60. The market is now anticipating only 33bps of rate cuts this year, a significant drop from 85bps just a month ago. The week was marked by a combination of stronger growth and persistent inflation, as indicated by the NFP and ISM services data. GIR now predicts two 25bp cuts this year instead of three. There was also a sell-the-news reaction to Jensen's CES keynote, alongside a leak in duration pockets with limited safe havens, uncertainty surrounding Trump 2.0 (including tariffs, TikTok, inauguration, and geopolitical issues), a corporate buyback blackout, and a substantial retail presence with a surge in sub $1 stock volumes. Investor sentiment heading into earnings appears to be just "okay," with the list of EPS setups featuring "debates" and "tricky setups" being longer than that of "clean" setups. The best performers this week were oil and commodity-sensitive stocks, which rose by 2-4%, while the worst performers included CRE, ADRs, biotech, and heavily shorted stocks, all down 4%.
From a flow perspective, long-only funds ended the week as $1 billion net sellers, while hedge funds were $1 billion net buyers. As anticipated, we saw the most selling pressure in tech, while financials, industrials, and healthcare ended up being net bought.
In terms of derivatives, the overarching narrative is that even as spot prices hit new lows and breach significant technical levels, volatility is struggling to maintain bids amid a steeper skew and higher volatility environment. We have observed roughly double the downside straddle in a flatter dealer gamma environment, yet fixed strike volatilities are only up about 0.2v in the two-month range. While this is notable, it contrasts sharply with the strong correlation between spot volatility and market movements we experienced over the past month. This indicates how elevated the skew has become, as even what would have been considered substantial selloffs not long ago are not exerting the same influence on implied volatility (at least for now). Our customer flow aligns with this narrative, showing a trend towards monetisation rather than further pursuit of optionality. Customers have been rolling down puts and selling put spreads in both SPY and QQQ today. Interestingly, the curve is still having difficulty inverting significantly despite this realised movement, with February and March fixed strike volatilities remaining relatively flat to one another. The desk continues to favor spreads over outright options given the current volatility levels and the expected influx of volatility supply in the coming week
Upcoming events to keep an eye on this week:
MACRO: US Producer Price Index for December (Tuesday morning 1/14), US Consumer Price Index for December (Wednesday morning 1/15; analysts expect a 20 basis point increase in the headline to +2.9% year-over-year while the core remains steady at +3.3%), South Korea's interest rate decision (Wednesday night 1/15), and China's Q4 GDP along with December's industrial production and retail sales on Thursday night 1/16).
EPS
On Wednesday morning (C, BK, BLK, GS, JPM, WFC); Thursday morning (BAC, MS, PNC, TSMC, UNH, USB); and Friday morning (CFG, RF, SLB, STT, TFC). Additionally, we have two significant conferences: ICR (January 13-15 in Orlando) and the JPMorgan Healthcare Conference (January 13-16 in San Francisco) & Trump staffing confirmation hearings on Tuesday (Hegseth and Burgum), Wednesday (Wright), and Thursday (Bessent).
PRIME WEEKLY:
US equities experienced net selling for the second consecutive week (3 out of the last 4 weeks, -0.5 SDs one-year), primarily due to Macro Products and short sales outpacing long purchases at a ratio of 2.5 to 1. Fundamental L/S Gross leverage increased by 3.3 points to 194.2% (89th percentile one-year) and Net leverage rose by 0.9 points to 56.5% (77th percentile one-year). Hedge funds have sold Consumer Discretionary stocks for the fourth week in a row and across nearly all regions. The sector weighting of the Prime book compared to MSCI World ACWI is currently at +4.83% (down from +5.5% at the beginning of December), which places it in the 25th/44th percentiles compared to the past one/five years.
Managers have purchased US TMT stocks at the quickest rate in three months, primarily through long positions. The current US TMT long/short ratio is 1.98, placing it in the 39th percentile compared to the past year and the 9th percentile relative to the last five years.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!