Nb. Our comment from the 08/30/22
It is a shame we couldn’t get a note out last week on the SPX, as just like the FTSE this index started the September expiry knocking on a high ratio door.
For the SPX this was R1, historically not particularly high but, under recent conditions, this index has even proved sensitive to just Y2 ratio.
Of course, this all came about because there was an absolute vacuum of ratio in the last expiry that allowed this index to be sucked higher. Very impressively finishing the August expiry +418.40-points, or 10.9%. Even exceeding our forecast at the start “that it could be one for the bulls”.
So, worth noting that the expiry intraday high in Aug was 4325.28 (16/08/2022), which made the closing high that very same day of 4305.20, the day before the rollover.
Again, and just like the FTSE, the zone here had been steadfast at 4000, 300-points below where the market was.
The good news, is that there is no Y ratio below said zone, which is not so good for the bears admittedly, but may prove very handy for the bulls as the market is just 30-points away now.
This therefore also means that we are seeing the smallest Y1 ratio bandwidth that we have for a very long time, coming in at just 110-points.
However, and as we have just experienced, the overall Y ratio bandwidth is still a very impressive 310-points, but which is nothing compared to what we have been seeing of late.
More importantly, it reverses the recent trend of ever-expanding bandwidths, which can only be good.
Plenty of life left in this index, and the bulls have nothing to worry about quite yet, that will only come with a test and fail of R1 at 3995. In the meantime, enjoy the wide-open expanse of the Y ratio.
Range: 4005 to 4305
Type: On balance bullish
Nb. Our comment for 09/06/22
Well, that test of 3995 came on the very day we last commented.
Not only did 3995 fail but the fact the close that day was 3986.16, some way below it, should also have had the bulls worrying.
Wednesday was all about this index finding its feet in the R1 ratio bandwidth.
The problem for us is trying to determine whether the intraday lows on Thursday and Friday, 3903.65 and 3906.21 respectively, were actually test of R2 at 3895.
Not actually hitting the next ratio level on the nail as it were, can sometimes mean it was still a test.
In this instance, if the fall had been far enough and fast enough then the resultant spike in the vega can mean this is the case.
And don’t forget this index had hit 4305, which does make this a cumulative fall this expiry of over 10%.
However, in true British fashion, we are going to compromise a bit, and say yes it was on Thursday and no to Friday.
Basically, Thursday was only 8.65-points away but, more importantly, this came after a fall of 52-points on the day and a losing streak of practically 300-points.
Friday’s, we see as more of a “you first” type situation.
Nevertheless, this is a very significant moment, as that is a lot of futures buying generated by the R2 level of dynamic delta.
Of course, if this is matched by those eager enough to sell, then the bears will win.
This we have no way of knowing.
However, all we can say, is that in the last twelve months or so, R2 has proved to be a very difficult hurdle for either bulls or bears to get past.
Range: 3895 to 3995
Type: On balance only just bullish