Nb. Our comment on 08/07/23
The trouble with when a market, like the FTSE currently, is so compliant to the influences of the ratio levels, is that is has to end at some point.
Bit like a petulant teenager, eventually it will want to test the boundaries of what it can get away with.
In the meantime, one has to simply follow the ratio play-book.
Last Monday, the 31st, saw the FTSE attack 7700 very first thing, with two spikes about 10mins apart, before it fell back to the intraday low of 7667.81. Then in the afternoon, it had another go, hitting the intraday high of 7722.92 before, significantly, finishing at 7699.41.
Tuesday saw the intraday low of 7650.15, or R1 (albeit a very weak R1) in our language.
Wednesday, the real opening was below 7650 for the record, but by then it was into Y1 ratio bandwidth.
Thursday, saw the market test 7450, very precisely first thing, then after a small bounce, with more vigour, establishing the intraday low of 7437.88 before finishing at 7529.16. Of course, 7450, was the upper boundary of the zone.
Which presumably moved on Friday, as we suggested last week it might, to 7500-7600.
This is exactly where the market spent last Friday of course.
Now, we enter the third week of this expiry, and after last week’s 250-point (3.3%) trip, we rather hope it will relax for a bit inside its new zone. Especially as the week after it will be the rollover and expiry. The rollover being into the third biggie of the year…
Therefore, this week 7500 and 7600 become absolutely critical levels and, the astute, will have noticed the SPX closed below its zone on Friday. Interestingly, both the SPX and the FTSE were in or around their respective zones on Thursday and Friday, rather coincidentally.
It is not a given that this new zone is permanent, as it could easily revert back to 7350-7450, and the bottom boundary is already on strike one. However, if the SPX decides it doesn’t want, or deserve, to be in bear territory, that could influence proceedings over here. Either way, of course. So, basically, watch those boundaries for any possible break out, while bearing in mind we are actually only at the halfway point for the August expiry.
Range: 7500 to 7600
Activity: Moderate
Type: Neutral
www.hedgeratioanalysis.com
Nb. Our comment from 07/31/23
Well, it wasn’t so much a “rude awakening” when the market encountered 7700, but more like a brick wall.
Apart from last Monday, every other day last week was a titanic battle with 7700.
Although, admittedly, the inroads in the last two days were greater than those on the Tuesday and Wednesday (intraday highs 7702.35 and 7702.74 respectively) with intraday highs of 7709.66 on the Thursday and 7716.82 on the Friday.
Despite the obvious failure to break through, you have to admire the commitment and tenacity in trying.
However, and far more importantly, is what may be in store for us this week.
As one can see there has been a lot of changes in the ratios, and deservedly so as activity has been at a very decent level, even for week one of the expiry.
First and foremost, 7700. It is now part of the R1 ratio bandwidth, which is still 7650 up to 7750. However, it still represents a step-up within that bandwidth, as at 7700 it is just below the threshold for remaining R2, whereas 7650 is just above the threshold of becoming Y2.
That said, 7700 is already on strike four, with the intraday tests to innumerable to count. In short, we are a bit surprised it remained so resilient on Friday.
Overall, obviously the ratios have fallen around where the market is currently but, outside that, they have actually risen, on both sides.
The upshot is, that the FTSE now has a bit more headroom but, R2 and R3, now lurk at 7750 and 7800 ready to ambush it.
Whereas, below 7700, it is now practically (ok 7650 notwithstanding) all Y ratio. So, brace yourself should this market get even a minor shock.
One saving grace may be that the zone may move to 7500-7600, which may limit the downside risk a bit.
Range: 7650 to (7700) 7750
Activity: Good
Type: Neutral
www.hedgeratioanalysis.com
