The Week Ahead

Despite Friday’s rally, futures are opening lower Sunday evening (-0.7% at the time of writing). We enter the week with some of the highest expected market moves and implied volatility since the recent sell-off began. Monday’s expected move of 1.1% is more than double what traders were pricing in February, as is the 2.5% expected move for the week. On one hand, this suggests that traders have adjusted their expectations for intraday swings at the risk of now overpricing moves. On the other, it signals that with the S&P 500 repeatedly testing its 200-day moving average last week, we may be closer to seeing a decisive resolution—either a breakdown below support or more trusted and sustainable bounce.

Regardless of direction, the reality is that the recent surge in volatility, along with rising option prices, has become somewhat of a self-fulfilling cycle, feeding into lower liquidity both in index futures and individual stocks. This environment makes sharp intraday reversals and exaggerated price moves more the rule, not the exception.

On the economic front this week, key inflation data will take center stage, with CPI Wednesday and PPI Thursday. That’s followed by a suddenly crucial consumer sentiment reading on Friday. Below are the expected moves for the week along with the economic calendar:

Expected Moves:

• SPX/SPY: 2.5% (5625-5925)

• QQQ: 3%

• IWM: 3.2%

• TLT: 1.4%

• USO: 2.6%

Economic Calendar: 

• Tuesday: 

  • 11am - JOLTS Job Openings

• Wednesday: 

  • 8:30am - CPI

• Thursday: 

  • 8:30am - PPI

  • 8:30am - Initial Jobless Claims

• Friday: 

  • 10am: Michigan Consumer Sentiment

In addition to the above catalysts we are seemingly no closer to a resolution on the tariff trade war. The longer that policy uncertainty remains, the larger real effect it could have on underlying economic conditions. Therefore, it remains the largest driver of market moves with any signal of resolution at least near term bullish, and any furthering of uncertainty more and more damaging as time passes.

Earnings season continues to wind down but we see a few more retailers this week as well as reports from tech heavyweights Oracle and Adobe. Note the large expected moves in many of these names, another result of the high volatility across the entire market:

Earnings (with expected moves):

• Monday

  • After hours: ORCL 9.2%

• Tuesday

  • Premarket: KSS 13.5%, DKS 9.3%

• Wednesday 

  • After hours: ADBE 7.7%, PATH 12.9%

• Thursday

  • Premarket: DG 9.2%

  • After hours: DOCU 11.1%, ULTA 7.2%

As mentioned last week, there’s quite the air bubble below here should the market not be able to hold its 200 day. If we see further selling this week expect the moves to get even larger and for the VIX to potentially spike towards 30, at which point we could see a capitulation type day. We highlighted the large option positioning at the 5565 level in SPX and its a spot to keep in mind as liquidity will be extremely thin if we approach that level, potentially causing a puke, and possibly followed by a rip higher should sellers get exhausted. You can read more about that aspect of the current market structure here.

As always we’ve got some great content and continuing coverage of the markets for you this week. Keep tuning in and tell your friends, we really appreciate it.

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