Can the SPX maintain this level of aggression?

R1 Hedge Ratio takes a battering from the SPX


Nb. Our comment from the 11/03/21


Exactly as we said at this time last week, how the market would react to Y2, then at 4505, would tell us all we need to know.

Apologies for being a day later than normal, but we think we covered the pertinent points last time and, quite frankly, not a lot has changed since then.

The zone has moved up to 4495-4505 as expected.

The market has stayed above Y2, so remaining in its Y2 ratio bandwidth.

R1 has continued to retreat, allowing the market to creep forward.

The only aspect limiting this index is now its sensitivity to what we call “step-up” levels. These are essentially the old higher level of ratio that have fallen, but for a day or so after can remain just below the threshold of the level they once were, so can still represent a hurdle to the market.

This can be evidenced by last Friday, when the market struggled at 4605, the old R1 level.

Then it was 4630, which was what it was all about yesterday, despite the fact that on the 2nd the official R1 level was 4665 and, although today it hasn’t changed, by the time we next publish we would be surprised if it wasn’t 4680 by then (or before).

Either way, it is still exemplary that this market now feels so comfortable taking on Y2 ratio, as it certainly hasn’t prior to this. This actually bodes well for the mighty Dec expiry just round the corner as well.

But, back in the Nov trip, the rollover and expiry are now just a couple of weeks away, and the Y1 and overall Y ratio bandwidths have actually increased, to 235 and 395-points respectively, so the risk is still very much there.

One last point is that although activity started this expiry off like a steam train, the last five days have been rather dire, but then again it is mid-expiry, so it may be a concern for now but we know it won’t last.


Range:            4505  to  4665           

Activity:          Very poor

Type:              Bullish




Nb. Our comment for 11/09/21


Eventually the SPX traversed the Y2 ratio bandwidth and started mixing it with R1.

As we are sure you know by now, making new all-time highs all the way.

Rather fortuitously we published last Wednesday 3rd, when R1 was at 4665, as the intraday high that very day came in at 4663.46.

The next day R1 moved to 4680, and we saw an intraday high of 4683.00, but importantly a close at 4680.06.

Basically, this market evidently didn’t like the dynamic delta that comes with R1 hedge ratio, but was far from scared of it.

Friday saw R1 move to 4705, where it is today, and although both Friday and Monday saw the close below this level, on both occasions the market got as high as 4718.50 and 4714.92 respectively.

It has been a very long time indeed since we have seen this index being so aggressive, so we are a bit unsure how to take it. Is it a new level of conviction? Or is it just holiday season gone a bit mad? As it stands and without any corroborating data, we have to side with this being an out-of-character seasonal twitch.

Albeit a very persuasive one, as after two days knocking on the R1 ratio door at 4705 not only is it on strike 3 but R1 at 4705 is now only just above the threshold and, the next level with a decent amount of meat on the bone, is 4730.

Meanwhile, both Y ratio bandwidths expand, the big one to a knee-trembling 9.8%, so the risk element is still very much there.

We will try to give you an early “head’s-up” for the Dec expiry, as this will be bringing its dreadnought-like influence to bear soon, as this expiry heads into the rollover and finish next week.


Range:            4505  to  4705 / (4730)           

Activity:          Moderate

Type:              On balance bearish


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November 9th, 2021 by