Nb. Our comment from the 01/08/21
And there we have it, the first test of a R ratio this expiry.
Which is very surprising, as the SPX is seldom this timid.
It is therefore a good idea to remind everyone exactly how much difficulty this index had with coping with just Y2 ratio, first at 3705 in the first week, then 3730/3745 in the second, and until yesterday, the current level at 3755.
So, what wasn’t a surprise, was the fact that this index camped out just below where R1 was yesterday, 3805.
If you knew it was there, then you understood what was happening, namely the market reaction to the dynamic delta.
The fact it has slipped a bit today has been coming, as we have persistently mentioned that the ratios above the zone have been falling, albeit “pedantically”.
Furthermore, in our last comment (above) we said it had “zeroed the clock”, so when it closed that day above 3705, this should have told you the bulls were back in charge, and an attack on R1 was more than likely.
What happens now is the big question, and as you can see in the above table R1 has slipped to 3815.
By Monday this in all likelihood will become 3830.
But, for a market that struggled against the lowly Y2, from 3805 up to 3830 is what we would now refer to as a step-up, so could easily still cause some reluctance among the bulls.
On top of this, we are already about to enter the rollover and expiry, so the zone should start to exert a gravitational pull, which is not to say it can’t or won’t move again, but we can’t see it get higher than 3745-3755 as things stand.
It wouldn’t be the first time this index just kept battering away on a retreating R ratio door, tediously repetitive in fact, but please don’t lose sight of that ginormous Y ratio bandwidth below this market, as that should scare even the most hardened bull.
Range: 3705 to 3815
Type: On balance bearish
Nb. Our comment for 01/13/21
Well, it hasn’t exactly been a case of the “tediously repetitive” as it hasn’t really been battering away at anything.
It started aggressively, last Friday, with the open of 3815.05, which was bang on our R1 level.
Again, no surprise at the coincidence.
And, as we said above, the R ratios were slipping, so we were anticipating R1 to be 3830 come the Monday.
As it happens, on the 11th, R1 was in fact 3840, so it could have been a lot more aggressive, successfully so for the bulls, than it was.
Our mistake was in not identifying that Y2 was going to slip, thereby opening up a potential move in the zone above the 3745-3755 we had been expecting.
In our defence, we suspect it has been a combination of the ratios eventually adjusting either side of the existing zone, and, probably more pertinently, the market deciding, amazingly early for an expiry, on Monday, that 3795-3805 would be a nice place to end this trip at.
Of course, we don’t know why, but the lack of any enthusiasm from the bulls to push home their advantage is a major contributing factor.
As would be the apparent lack of any bears.
So, bit of a default expiry from what we can make out.
This is borne out by the fact, that despite the R ratio rising below, the fact it has slipped above, means that the Y ratio bandwidth remains exactly the same, at 410-points.
All bit of an anti-climax really, but don’t drop your guard just yet, as normally, with so much minimal Y ratio around, volatility isn’t far behind, so the potential still very much exists for 3% moves, that may or may not include whipsaws.
Range: 3705 to 3855