Nb. Our comment on 04/03/24
The FTSE managed a net loss on the week of 23.78-points but, again, it was an exciting ride.
All the while, the market is rubbing its hands with all this time value erosion.
The trouble is that it is not quite as vanilla as all that.
At the start of the week the FTSE did manage to get back above 7700 but, it was exceedingly plain to see, that the memory of that big futures seller at 7750 (R3) was playing on their minds.
With that attitude, it was simply a case of going back to the zone’s upper boundary at 7650. This basically occupied it for the best part of Tuesday and Wednesday.
There is absolutely no doubt in our mind that the FTSE would have been more than happy, ecstatic even, to stay zone-bound for the remainder of last week if it weren’t for external factors.
In a nutshell, every other Western market was hitting new highs, especially the DAX. They have managed to pump up their all-time high from 17198 at the start of this expiry, to 17816 currently (3.6%).
This just goes to show the huge disconnect between London and the rest of the world. There is a very blatant reason for this and, this will surprise many, it is not economic but simply market structure. Far too complex to explain here but, suffice it to say, why these delta levels are so effective in the FTSE.
So, next week, and there have been significant changes in the ratio table.
As you can see, 7750 is now R2. This still represents a serious step-up, especially as these levels are exponential, but obviously therefore, is a lot less than R3.
That now lurks at 7800, with the truly impressive DR still holding firm at 7850.
Therefore, we can see the FTSE force its way up to 7800 but, the preferred outcome, even by the markets desire we believe, is to get back to its zone.
Worth remembering that the SPX is fighting R3 itself, so we rather doubt much help will be coming from that quarter to help London grow a pair and start taking on those ratio levels itself.
Range: 7650 to 7750
Activity: Poor
Type: Bearish
www.hedgeratioanalysis.com
Nb. Our comment from 26/02/24
Seems like we are back to that favourite pattern of the FTSE of excitedly going nowhere. Of course, it certainly helps to erode the time value element.
Well, it did manage a drop of 5.43-points, but you know what we mean.
However, if you knew where the ratio levels were, then the FTSE did in fact have a very educational week. One that sets up the rest of this expiry nicely.
We took great pains in last weeks comment to highlight the significance of 7750 (please see below) and the market certainly didn’t disappoint.
On Tuesday the intraday high was 7748.73, so we have absolutely no hesitation in calling that strike one of the R3 lurking there.
The very next day we saw the market test the other end of our 100-point trading range, namely 7650 otherwise known as the upper boundary of the zone.
Wednesday’s intraday low was7642.75 but, and significantly, the close was back above the zone at 7662.51.
Just for confirmation the market tested it again on the Thursday, with the intraday low of 7651.65.
Looking ahead, and you now know that the market knows what is at 7650 and 7750 now.
This makes life very straightforward, especially as you can see in today’s ratio table that above the zone there haven’t been any changes.
This means R3 is still there, and the market knows it, so if it isn’t hugely committed then it will shy away from testing it again.
Also, after Wednesday and Thursday, the upper boundary, 7650, is now on strike three.
For the bullish case, the ratios below the zone have all seen some decent strength.
For the bears, R3 at 7750 is still a very tough level to get over but, if it does, then it could get as high as 7850. However, the DR ratio there is an absolute mountain. On balance, the most likely outcome would be for it to head into the safety of its zone.
Range: 7650 to 7750
Activity: Moderate
Type: On balance bearish
www.hedgeratioanalysis.com
