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01/13/25 – Weekly Outlook: SPX & GEX and Options Insights

Despite last week being a shortened trading week due to Thursday’s market closure, it still managed to deliver significant volatility dure to economic news.

SPX

Below is the SPX daily chart showing its declining trend channel.

he macroeconomic data on Tuesday and Friday were not well-received by the markets. Friday’s Non-Farm Payrolls (NFP) report came in much stronger than expected, with more jobs created and a decrease in unemployment.

While this is generally positive for the economy, it’s less favorable in the current context where markets are hoping for further rate cuts. A strong labor market and declining unemployment mean more disposable income, which could fuel inflation and push the FED to delay rate cuts. Unsurprisingly, the market responded with a sell-off.

The GEX levels indicate the strongest put support at the 5800 level. Since we’re in a negative HVL environment, a breach of this 5800 level could accelerate the decline. The likelihood of this happening is heightened due to the week’s event risk. Core PPI data is set to be released on Tuesday, followed by Core CPI on Wednesday. Should these figures come in worse than expected, they could further fuel the downtrend that began last week.

The SPX remains in a negative gamma environment, with all expirations over the next 30 days showing negative net gamma. The most pronounced negative gamma peaks at the 5800 level.

Additionally, Put open interest and volume are significantly higher than on the Call side.

TNX

Another key factor to watch is the 10-year Treasury yield (TNX), which reached new levels last week, approaching its all-time high. If the TNX rises, bond prices fall as the market anticipates higher yields. A rise in TNX has a clear negative impact on equity indices. Keep a close eye on how TNX reacts to this week’s CPI and PPI data and whether it approaches its all-time high.

Here you can see the W shape on the weekly chart of TNX.

Oil

Another market showing notable movement is oil. It broke out of a prolonged descending triangle and established a solid uptrend. Currently, it’s testing a resistance level around the 78 mark.

Below is the weekly chart of oil, showing additional resistance levels if the rally continues.

Educational Position Management Video

Here’s how I managed a Bull Call Spread on XLE, positioned for an upward move, complemented by a Short Put for added support. It generated $300 profit in 7 days.

Watch the video below to see the full position management process.

Earnings Season Kicks Off

This week marks the beginning of the earnings season, with a strong focus on the banking sector. Below is an image highlighting the key earnings reports scheduled for the week.

In Summary

With this week’s macroeconomic data releases, negative GEX levels, rising TNX, and the kickoff of earnings season, I expect heightened volatility in the markets. As always, proper position sizing and risk management are crucial to navigate these conditions effectively.