Nb. Our comment from the 11/23/20
Well the mighty Dec did bring its weight to bear on the Nov expiry so much so it was down to the expiry auction for the last-gasp attempt to get it back to around 6400.
One of London’s peculiarities is what we refer to as the “amber gambler(s)”.
Nothing to do with a red light, but rather with the expiry looming, London quite often sees a big spike in activity in a particular pair of strikes.
This time round it was the 6400 and 6450 that saw all the activity, which led us to suspect an expiry somewhere between the two might be rather welcome.
As it happens, the EDSP was 6390.08, arrived at by another of London’s peculiarities, an auction held at 10:10.
This is highlighted by the fact the official intraday high on Friday was 6386.70.
Yeah, we can’t understand, let alone justify it either.
Where the mighty Dec came to weigh in, was the fact that 6350 was where DR started, and this index had trouble at this level all week.
Which brings us round to the next peculiarity, the closing auction, and just like the expiry auction, we can’t understand or justify this either.
Anyway, the real time close was 6346.74, and it was the auction that took it 1.45-points above DR.
How will this affect the FTSE today, we just don’t know.
DR is a massive bandwidth, and obviously 6350 is the critical demarcation line.
But whether Friday’s closing auction was an attempt to leapfrog it, so an intentional gambit, will dictate whether or not the plan is to stay above it, or, perhaps, it was just as a result of the Nov expiry hangover, just don’t know, sorry, but guess we will find out soon enough though.
Range: 6250 to 6350 or 6350 to 6750
Type: On balance bullish
Nb. Our comment on 11/30/20
The FTSE was desperate to go higher, that was plain for all to see, so it was perhaps very confusing for it to keep encountering all those futures forced out by the dynamic delta.
Having closed on the 20th with its fingertips above the critical level, courtesy of the auction, then being DR at 6350, it benefitted from the vaccine news from AstraZeneca.
But, peaking at just 6392.08, and then finishing down 17.61-points at 6333.84, below DR, really just went to show the markets surprise and reaction to those futures that were being sold.
Tuesday saw it again try to break free, but for the rest of last week it was obvious to all who knew it was trying to wade through DR ratio why it was struggling so much, as it kept gravitating back towards that critical 6350 level.
So, after what was an exciting week, the net result is just a move of a mere 16-points.
Looking ahead, despite the ratios changing above the zone, 6350 is still the critical level, even though it is now R3.
This means the title of DR has now passed to 6450, making for a nice and tight bandwidth, or trading range.
The only question, is whether or not this index has now grown comfortable being in DR ratio, and the only way we would know is to have calculated the ratios daily, and therefore know exactly when 6350 changed, and thereby be able to gauge how the market reacted at that time.
Obviously, the ratios are falling above the zone, so, unless the test is immediate, then we feel far more confident in calling 6550 as the next level that could surprise this market with a bit of dynamic delta hedging.
Also, by expiry, we would expect to see the zone here move to 6150-6250.
Range: 6350 to 6450 (6550)
Activity: Very poor
Type: On balance bullish