After nearly a week of balance, broad equity markets closed Friday at their 6-month highs on strong earnings out of J.P. Morgan and performance from the Financial Sector (XLF). Financials and Bonds/Notes are critical to the overall market's ability to trade towards and beyond new highs.
With Trends still sharply higher, and no indication of a reversal brewing, risk remains on.
The SP500 Weekly Implied Move is only + / - 27 points or 8.9% Implied Volatility. This equates to a lower edge and an upper edge of 2880.04 and 2934.79, respectively. To state the obvious, this market is dangerously docile and complacent since we know the mean reverting nature of volatility. Let's look for potential catalysts.
Apart from our usual known catalysts such as Economic Releases, Fedspeak and a small number of Conferences, focus turns this shortened holiday week towards Earnings Season.
The market is also focused, according to extreme readings in implied correlation, on idiosyncratic drivers of return. In other words, it's set itself up for earnings as a catalyst. Whether that catalyst is as a breakout or breakdown, time will tell; however, one interesting study points to a more neutral tone going into this cycle.
Using Bloomberg's new Query Language and filtering for tradable candidates reporting earnings this week, we observe the following names reporting.
This is helpful to dive deeper into individual names; however, as a flurry of reporting companies soon accelerate, more sophisticated analysis is required.
Our new Lollipop Chart will immediately focus us into the sectors with the most underlying companies reporting.
We immediately infer the Financial Sector dominates. The Weekly Implied Volatility in our proxy, XLF, is 3x the SP500 at 26.2%. Given the Financials dominance in the SP500, we view the low weekly implied move in the SP500 with skepticism.
Uncovering other potential catalysts is trivial when using visualization. Goldman and Netflix draw our attention as examples.
Updated 240-Minute Levels.
Have a great week.
All the best,