Can the SPX cope with R2 dynamic delta

Has the SPX bitten off more than it can chew?

Nb. Our comment for 06/06/23

 

As compliant as the FTSE is being here, on the other side of the pond, the SPX is being rather aggressive.

We did point out last week that sometimes this index can “get a bee in its bonnet” and, we did suspect as much, otherwise we would not have mentioned it.

Essentially, it was looking for a fight, or that was the way it appeared to us at least.

To be fair, it needed something to give it a shake as, up until the middle of last week, the SPX had gone absolutely nowhere. It started this expiry by opening at 4190.78 and by last Wednesday 1st it had closed at 4179.83.

The only question that remains, is whether or not it has now bitten off more than it can chew…or more precisely, more futures than it can handle courtesy of the dynamic delta that comes with encountering R2 ratio level.

Judging by the reaction yesterday, when it should have “sobered up”, the answer is yes, it looks decidedly uncomfortably with this many futures coming out onto the market.

Luckily, for the market, by shaking things up a bit then we are seeing the ratios above the zone recede quite quickly now.

Amazingly though, the actual zone itself hasn’t moved.

Obviously, today R2 starts at 4270 but, by the end of play we would expect it to have slipped to 4280. Then, during the week, it will slip further to 4305.

The SPX can of course continue to knock on the retreating door of R2 but, next week is the rollover and expiry, and where that will end up is going to become increasingly important.

So, enjoy it while you can, but we feel the bulk of the upside potential has been achieved for this expiry and the downside risk only grows.

 

Range:            4005  to  4270 (4305)           

Activity:          Poor

Type:              On balance only just bearish

 

www.hedgeratioanalysis.com

 

 

Nb. Our comment from the 06/01/23

 

Nothing at all to do with the SPX to begin with as we must point out that hopefully you took heed of the dubious nature of the support R1 ratio would provide the FTSE100 at 7550.

Furthermore, also what we said about 7450, as today, in this index, this is what it will all be about, no question.

Looking at the SPX now, and as you can see there hasn’t been a great deal of change.

However, there have been significant developments regardless.

Firstly, although the zone hasn’t changed, it seems like 4145-4155 has eventually made up its mind in the last few days to becoming the very likely new zone.

Secondly, on Tuesday (the first trading day this week) this index hit two very important ratio levels.

Initially it hit R2 then at 4230 with the intraday high of 4231.10.

Then it closed at 4205.52, right on R1.

Overall, this shows that the ratios are retreating above the zone (which we knew anyway), that the zone should move up and, what is not evident in the table, is that the ratios are growing below the current zone.

This is all bullish. However, a lot of this has been already reflected in the market, as the market still remains just below R1 and R2. So, the downside risks still remain, as the corresponding R1 & R2 levels don’t start until 3995-see trading range below.

As there is a lot of potential news to come out, debt and rates to name two, so just to warn you that sometimes if the SPX gets a bee in its bonnet, then it can blast through ratio levels, only sobering up the next trading day.

 

Range:            4005  to  4205           

Activity:          Poor

Type:              On balance only just bearish

 

www.hedgeratioanalysis.com

 

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June 6th, 2023 by