Category: Uncategorized

June 21st, 2021 by Richard

Very interesting start for the FTSE July expiry.

 

Nb. Our comment from the 06/14/21 (Not published)

Nb. Our comment on 06/21/21

 

The most striking aspect in the July expiry is the fact that the zone is 7050-7150.

This is very significant as at this level the market is currently below it, so by definition in bear territory.

However, it is never that straightforward, today being the first day of the July expiry being the front month, so where the market finished on Friday is, or can be, as much to do with the June expiry than this one.

And in June, over the last couple of days, 6950-7050 was looking a shoe-in to be the next zone.

So, in this context, where the market finished on Friday is just natural, so no bull or bear agenda at all.

Nevertheless, having just said that, if the bulls have any remaining aspirations, they won’t want to stay below the zone for long, if at all.

Therefore, our trading range, shown below, takes on an entirely new perspective, as it has been a very long while since the bears were in charge.

This is again a more normal 4-week expiry, but it is an intermediary, so all the numbers basically drop by about two thirds, so the big question now, is whether or not the market’s sensitivity will also adjust, as it should, but is never guaranteed.

Also, the delta ratio is just below 150, currently standing at 148.9%, so marginally inside the tolerance level, although at this point in the June expiry, when it stood at 178.9%, it didn’t adversely affect the bulls that much, or at least not at the start anyway.

So, 7050 is key, at least this week it will be, otherwise the bears will have a chance to shine, but judging by their absence over the last couple of expiries, it is highly questionable just how aggressive they might actually be.

 

Range:            6950  to  7050       

Activity:          Average

Type:              Neutral

 

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June 8th, 2021 by Richard

The SPX remains locked in a fight with Y2.

 

Nb. Our comment from the 06/02/21

 

What an absolutely epic battle the SPX has been having with Y2, then at 4205.

Virtually daily the incursions were getting deeper and deeper, and twice, they even tried a gap up at the opening, trying to leapfrog this level, before yet again closing below it.

But, at last, it has today conceded ground, and with our honest respect, as it put up a mighty battle for what is essentially a minimal ratio level.

We haven’t mentioned this in a while, but the entire reason for even having the Y ratios, is because they are so minimal that they are a very good and accurate first indication of any trend, or even an acceleration or relaxation of said.

However, because of Y2’s stubbornness, what we have witnessed is a build-up of the ratios below the zone.

Appreciated, we have said for a while now that we fully expect the zone to move, but with this release of pressure, we think it will start to move up very quickly now.

So much so, where before we were looking at 4120-4130, now we would not be surprised to see it settle around the 4200 level.

This indeed could be a game-changer, apart from the obvious fact that Y2 is now 4230, but more along the lines of the ratios overall above the zone being in retreat.

Obviously, it is making extremely heavy weather of it, after all we are talking about just Y2, but the point is that the way forward is now open.

However, having just said that, please also respect the fact that although the war with Y2 at 4205 has been won, the ratios are firming up below the zone, which itself is very likely to move up, considerably too, but there is still a vast amount of Y1 ratio below this market.

In fact, Y1 currently goes down to 3945, which is a sphincter-clenching 260-points away, so just don’t kid yourself that this is a risk-free market.

 

Range:            4005  to  4230           

Activity:          Poor

Type:              On balance bearish

 

 

Nb. Our comment for 06/08/21

 

The SPX battle with Y2 has continued, although probably not quite as “epic” as it was while it was at 4205.

Nevertheless, last Friday the intraday high was 4233.45 and the close 4229.89 (Y2 4330), which should have given it the perfect platform to breach it come Monday.

However, on Monday Y2 slipped to 4235, where it is today, and the intraday high was just 4232.34, and the close you can see on the table above.

Basically, it keeps knocking on the door, but still hasn’t generated enough momentum to walk in.

And, exactly as we said in the last expiry, we are just talking the minimal Y2 ratio, so it really is not a great deal of futures they need to buy before moving on.

Worth noting in amongst all this fixation with Y2, is that the ratios below the zone have actually weakened, which is not good.

R1 neatly encapsulates what has been happening, as between our last note (2nd June) and this, it has been down to 3845, before recovering to where it is today.

At the moment, the only outcome of this seems to be delaying the upward move in the zone, and perhaps reining in the expectations a bit, but even so 4145-4155 now looks a shoe-in, and after that any of the other levels mentioned are still very possible.

We have mentioned the amazing width to the Y ratio bandwidths ad nauseum, but this very fact just makes these huge jumps in the zone possible, but where the ratios don’t fill in, or build below them, then they can just as easily be reversed.

We are not saying that this is going to happen, but with the overall Y ratio bandwidth now standing at 415-points, then your risk factoring should be including a potential reversal of at least 9.82%.

It is a most peculiar situation, as here we are lurking just below all-time highs, and yet the level of “bullishness” as depicted by the ratios is astonishingly low, and just to add another twist, across the pond, which is still yet to achieve a new high, the bulls are in an all-out fist fight with R3/DR levels of ratio, go figure.

 

Range:            4005  to  4235           

Activity:          Poor

Type:              On balance bearish

 

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June 7th, 2021 by Richard

FTSE's Ratio bandwidth widens, but has the damage already been done?

 

Nb. Our comment from the 06/01/21

Resilient or stubborn, difficult to tell really, but either way the inescapable truth is the FTSE desperately wants to go higher.

The problem is R3 at 7050 standing in its way.

In our last note we mentioned that this level was only just below the DR threshold, so although it hasn’t actually changed in classification, it has changed numerically, and is now just above the mid-point of the R3 range, rather than at the top.

Which is hardly very surprising, considering the absolute battering it has taken all week.

Literally every day the market tried to get past the dynamic delta at this point, and last Friday just typified the daily efforts, with at least three peaks running up to and just kissing 7050, before pulling back.

Not too sure why they don’t do their normal trick, which is to close in real time just below 7050 (or whatever is the problem level), then use the auction to get above it, which of course generally works as the futures market is closed when this auction takes place.

The U.S. take an entirely different approach, as they tend to use the opening gap up, as witnessed last Friday, which allowed them to get over Y2 at 4205.

Obviously 7050 is still key, but please note the other end of our trading range, R2 at 7000, which has seen two tests, with the intraday lows of 6998.19 and 7008.53 on Wed and Thu respectively.

So, one more would make that strike 3.

The other main point to make you aware of, is the appearance of some Y ratio below the zone.

As it is highlighted in the above table it is difficult to miss, but what may not be apparent at first glance, is that this bandwidth is a whopping 400-points wide.

 

Range:            7000  to  7050       

Activity:          Poor

Type:              On balance bullish

 

 

Nb. Our comment on 06/07/21

As we said “the inescapable truth is the FTSE desperately wants to go higher”, and it didn’t hang about, charging out of the gate on the Tuesday, following the Bank Holiday.

Therefore, it was really quite sad that at that point DR was waiting to ambush it at 7100.

Sad, because having eventually broken past R3 at 7050, this next level was just 50-points above it.

And 7100 basically controlled, or constrained, pretty much all the activity on that Tuesday and Wednesday.

And if the first two days of last week were all about DR, then the last two days were all about its arch nemesis from the week before 7050.

Which actually means both levels are on strike two, but the pertinent bit is that DR has now moved from 7100 to 7150.

Which makes the $100 question; Does the market realise, or has the first two strikes done enough to make the market keen to avoid another tangle?

Therefore, another change in the ratios is that we have also lost R2 above the zone.

Meaning the R1 bandwidth is an impressive 200-points wide now.

There are still two weeks to go in this expiry, but at some stage the zone is also going to make its presence felt, although judging by the activity, we don’t see this market being at all patient.

Don’t forget it is a triple, and as such the numbers are just so significantly higher, that by achieving “moderate” this is in fact quite a decent level of activity.

Decent enough in fact, to cause all the changes to the above ratios.

 

Range:            7050  to  7150       

Activity:          Moderate

Type:              Bearish

 

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June 2nd, 2021 by Richard

After the SPX's absolutely epic battle with Y2 at 4205 it has just now moved.

 

Nb. Our comment from the 05/26/21

 

We have to start this comment on the June expiry with a few final words on the last one, and as the market closed at 4159.12 on the Thursday immediately prior to expiry, and our zone was 4145-4155, we are taking that as a hit.

OK, so the EDSP was a bit higher, but worth noting the actual close on Friday was 4155.86.

Getting back to June, and the obvious stuff first, being that this is a “biggie”, triple or quadruple to the US, and is a more conventional 4-week trip.

Now, the reason why we harken back to the May expiry, is because although it appeared rather volatile, it was nothing compared to what it could have done.

Back then the respective Y ratio bandwidths, although they did narrow at the end, were on average about 260 and 480-points.

So, looking at June, the Y1 ratio bandwidth is today 310-points, and the overall Y ratio bandwidth is 410-points.

Absolutely remarkable, and in the days of yore, basically BC (Before Covid), in a biggie you would normally struggle to find any Y ratio at all, let alone more than in an intermediary.

The main point of this is that in a lacklustre intermediary you might get away with it, but due to the sheer volumes in a biggie, then this is highly unlikely.

Having just said that, the intraday high on Monday was 4209.52, and 4213.42 yesterday, and on both days Y2 was at 4205, and so if the market is struggling at just this minimal level of ratio, then it is fair to say that the sensitivity is still here, or at least for the time being.

As we are running out of space, one final point is that the zone is looking very likely to move to at least 4120-4130, but it is still the vast expanse of Y ratio that should be concentrating your thoughts.

 

Range:            4005  to  4205 / 4255           

Activity:          Poor

Type:              On balance only just bearish

 

 
Nb. Our comment for 06/02/21

 

What an absolutely epic battle the SPX has been having with Y2, then at 4205.

Virtually daily the incursions were getting deeper and deeper, and twice, they even tried a gap up at the opening, trying to leapfrog this level, before yet again closing below it.

But, at last, it has today conceded ground, and with our honest respect, as it put up a mighty battle for what is essentially a minimal ratio level.

We haven’t mentioned this in a while, but the entire reason for even having the Y ratios, is because they are so minimal that they are a very good and accurate first indication of any trend, or even an acceleration or relaxation of said.

However, because of Y2’s stubbornness, what we have witnessed is a build up of the ratios below the zone.

Appreciated, we have said for a while now that we fully expect the zone to move, but with this release of pressure, we think it will start to move up very quickly now.

So much so, where before we were looking at 4120-4130, now we would not be surprised to see it settle around the 4200 level.

This indeed could be a game-changer, apart from the obvious fact that Y2 is now 4230, but more along the lines of the ratios overall above the zone being in retreat.

Obviously, it is making extremely heavy weather of it, after all we are talking about just Y2, but the point is that the way forward is now open.

However, having just said that, please also respect the fact that although the war with Y2 at 4205 has been won, the ratios are firming up below the zone, which itself is very likely to move up, considerably too, but there is still a vast amount of Y1 ratio below this market.

In fact, Y1 currently goes down to 3945, which is a sphincter-clenching 260-points away, so just don’t kid yourself that this is a risk-free market.

 

Range:            4005  to  4230           

Activity:          Poor

Type:              On balance bearish

 

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June 1st, 2021 by Richard

R3 at 7050 is still key for the FTSE, but don't forget R2 at 7000 is on strike 2.

 

Nb. Our comment from the 05/24/21

Well, the FTSE has a very big decision to make, and right at the very start of this the triple witching June expiry.

This can be a good thing, as it should set the tone for the remaining four-weeks, so a baptism by fire can quite often get everyone up to speed quicker than normal.

By this we mean by closing just above 7000 it will now find itself in a very narrow 50-point R2 ratio bandwidth, with R1 below it, and R3 above.

And the R3 above is a very robust R3, being only marginally below the threshold of being DR, and please don’t forget, as these ratios are exponential then this is a significant amount of ratio even for a “biggie”.

It is not unheard of for triples to be very aggressive, and in the past, we have seen them trade between the B ratios, however it would be quite a leap for everyone to suddenly turn on that particular tap for two reasons.

Firstly, it is very early on in the expiry, literally day1, and secondly, although it has been acting aggressively recently, it baulked severely at R3 when it hit it at 7150 the other day.

In fact, such was the reaction it went all the way down to the bottom boundary of its zone, at 6800.

Which is a real shame for those chasing a new all-time-high, as practically every 50-points above R3 is a significantly higher level of ratio, which means an awful lot of futures are going to have to be absorbed before they can track higher.

Not impossible, but unlikely, we think.

But, either way, it should certainly be an exciting start to this, the second biggie of the year.

 

Range:            7000  to  7050       

Activity:          Moderate

Type:              On balance only just bearish

 

Nb. Our comment on 06/01/21

 

Resilient or stubborn, difficult to tell really, but either way the inescapable truth is the FTSE desperately wants to go higher.

The problem is R3 at 7050 standing in its way.

In our last note we mentioned that this level was only just below the DR threshold, so although it hasn’t actually changed in classification, it has changed numerically, and is now just above the mid-point of the R3 range, rather than at the top.

Which is hardly very surprising, considering the absolute battering it has taken all week.

Literally every day the market tried to get past the dynamic delta at this point, and last Friday just typified the daily efforts, with at least three peaks running up to and just kissing 7050, before pulling back.

Not too sure why they don’t do their normal trick, which is to close in real time just below 7050 (or whatever is the problem level), then use the auction to get above it, which of course generally works as the futures market is closed when this auction takes place.

The U.S. take an entirely different approach, as they tend to use the opening gap up, as witnessed last Friday, which allowed them to get over Y2 at 4205.

Obviously 7050 is still key, but please note the other end of our trading range, R2 at 7000, which has seen two tests, with the intraday lows of 6998.19 and 7008.53 on Wed and Thu respectively.

So, one more would make that strike 3.

The other main point to make you aware of, is the appearance of some Y ratio below the zone.

As it is highlighted in the above table it is difficult to miss, but what may not be apparent at first glance, is that this bandwidth is a whopping 400-points wide.

 

Range:            7000  to  7050       

Activity:          Poor

Type:              On balance bullish

 

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May 26th, 2021 by Richard

The SPX is still struggling with Y2 Ratio.

 

Nb. Our comment from the 05/21/21 (Not published)

 

Nb. Our comment for 05/26/21

 

We have to start this comment on the June expiry with a few final words on the last one, and as the market closed at 4159.12 on the Thursday immediately prior to expiry, and our zone was 4145-4155, we are taking that as a hit.

OK, so the EDSP was a bit higher, but worth noting the actual close on Friday was 4155.86.

Getting back to June, and the obvious stuff first, being that this is a “biggie”, triple or quadruple to the US, and is a more conventional 4-week trip.

Now, the reason why we harken back to the May expiry, is because although it appeared rather volatile, it was nothing compared to what it could have done.

Back then the respective Y ratio bandwidths, although they did narrow at the end, were on average about 260 and 480-points.

So, looking at June, the Y1 ratio bandwidth is today 310-points, and the overall Y ratio bandwidth is 410-points.

Absolutely remarkable, and in the days of yore, basically BC (Before Covid), in a biggie you would normally struggle to find any Y ratio at all, let alone more than in an intermediary.

The main point of this is that in a lacklustre intermediary you might get away with it, but due to the sheer volumes in a biggie, then this is highly unlikely.

Having just said that, the intraday high on Monday was 4209.52, and 4213.42 yesterday, and on both days Y2 was at 4205, and so if the market is struggling at just this minimal level of ratio, then it is fair to say that the sensitivity is still here, or at least for the time being.

As we are running out of space, one final point is that the zone is looking very likely to move to at least 4120-4130, but it is still the vast expanse of Y ratio that should be concentrating your thoughts.

 

Range:            4005  to  4205 / 4255           

Activity:          Poor

Type:              On balance only just bearish

 

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May 24th, 2021 by Richard

Big decision for the FTSE right at the very start of the June expiry.

 

Nb. Our comment from the 05/17/21 (On the May Expiry)

Wowee, that was certainly quite some ride, and best of all, it should not have come as a surprise at all.

Literally on the day we published the FTSE went up to take on R3 once again at 7150.

Fascinating battle it was too, and quite a robust one with the market even achieving an intraday high of 7164.18.

Tuesday saw the capitulation, and the battle at the other end, this time with the top boundary of its zone was actually a touch and go affair really.

The fact the market closed just inside its zone, at 6947.99, was not a good sign for the bulls, but they persisted, and managed to have a fairly decent Wednesday.

However, the damage had been done, and so it really didn’t need much of an excuse to test the boundary at the other end of its zone, 6850.

Here, on the Thursday, it had a deeper incursion into bearish territory, by 27-points, which is far more than we would have liked, but in the end, it held, although it needed a decent helping hand from across the pond, which also just goes to show how close it was to being as bad here as it was over there.

Now we are in the rollover and expiry week, we are back to our old friend 7050, although this time it is R1.

Essentially, a lot of money has been taken off the table, on both sides mind, so there have been meaningful changes to the ratios.

The zones move to 6950-7050 is looking rather unlikely now, although 6900-7000 is a possibility, we think the real battle will be between the equity bulls and the gravitational force of the zone for the rollover/expiry which will dictate this week.

Also, next up, is the mighty June, our second “biggie” of the year, and this will have a role to play this week, if only because of its size weighing, in every sense of the word, on proceedings.

 

Range:            6950  to  7050       

Activity:          Average

Type:              On balance not bullish

 

Nb. Our comment on 05/24/21 (On the June Expiry)

 

Well, the FTSE has a very big decision to make, and right at the very start of this the triple witching June expiry.

This can be a good thing, as it should set the tone for the remaining four-weeks, so a baptism by fire can quite often get everyone up to speed quicker than normal.

By this we mean by closing just above 7000 it will now find itself in a very narrow 50-point R2 ratio bandwidth, with R1 below it, and R3 above.

And the R3 above is a very robust R3, being only marginally below the threshold of being DR, and please don’t forget, as these ratios are exponential then this is a significant amount of ratio even for a “biggie”.

It is not unheard of for triples to be very aggressive, and in the past, we have seen them trade between the B ratios, however it would be quite a leap for everyone to suddenly turn on that particular tap for two reasons.

Firstly, it is very early on in the expiry, literally day1, and secondly, although it has been acting aggressively recently, it baulked severely at R3 when it hit it at 7150 the other day.

In fact, such was the reaction it went all the way down to the bottom boundary of its zone, at 6800.

Which is a real shame for those chasing a new all-time-high, as practically every 50-points above R3 is a significantly higher level of ratio, which means an awful lot of futures are going to have to be absorbed before they can track higher.

Not impossible, but unlikely, we think.

But, either way, it should certainly be an exciting start to this, the second biggie of the year.

 

Range:            7000  to  7050       

Activity:          Moderate

Type:              On balance only just bearish

 

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May 19th, 2021 by Richard

The SPX's zone actually moves down...

 

Nb. Our comment from the 05/12/21

 

For those of you that follow us on Twitter then they knew that the zone changed to 4170-4180 the day it moved, on the 6th May the very next day after our previous note.

This was a significant, and although flagged, even we were a bit surprised at how quickly it came about.

Not because of the depth of the ratios, but because it had taken the previous move so long in a similar situation.

However, that made two moves in two days, a good sign that interest and involvement were picking up.

Also, before this expiry is out, we would fully expect one more move, very probably to 4195-4205, but we still have a week and a half to go, so no rush.

But this is not the real reason why we are leading with the zone, but rather because the market now finds itself below it, and therefore in bearish territory.

This is only day 1 that it has been below its zone, so today is really very critical, as it generally tends to decide whether the bulls or bears are now in charge.

So, 4170-4180 is now a very significant level.

We are not great believers in coincidence, so it is also worth pointing out that the FTSE is also in a similar situation with regard to its zone.

Obviously, our ratio table above gives you the levels, so it really is a case now of who is, or wants to be in charge, as the overall bandwidths have shrunk a bit, with Y1 now standing at 260-points, and the overall Y ratio bandwidth “only” 435-points.

Therefore, if the bulls remain absent, then there is still a huge potential move.

Either way, it looks like this market is gearing up for a volatile end to this expiry, which just hasn’t got off the ground, and still remains one of the biggest Y ratio bandwidths we have ever seen.

And next week is the rollover and expiry, and that is into the second “biggie” of the year, the triple witching June expiry, so we could be in for a hot summer after all.

 

Range:            3995  to  4170           

Activity:          Poor

Type:              On balance bearish

 

Nb. Our comment for 05/19/21

 

Actually, we could start this note off exactly as we did the previous one, apart from the fact we didn’t actually mention the zone move on Twitter yesterday, sorry.

To be honest, it caught us somewhat by surprise, admittedly the potential was always there, simply because of the lack of ratio about.

And again, because of this lack, it didn’t take much activity and it was a done deal, but it was rather significant.

More significant however, was that the market rallied back up to it, but couldn’t hold it.

But it is still below it, so despite being in bear territory, the next day or so should benefit from an upwardly gravitational pull from it, which is somewhat of a novelty these days, such a rarity is this situation.

Although, with the mighty June looming large in the headlights, and if this hasn’t caught up with the market, then it may prove the larger celestial body.

At the end of the day, or more precisely this expiry on Friday, the one aspect we will take from this is that this index has truly dodged a bullet.

As with so little ratio about, it really could have gone anywhere, and if it had followed a conventional path, it should have gone down (or up) to a support (resistance) level, reversed to the opposite one, before finishing in or about is zone.

The point being, is that as the Y ratio bandwidth was literally 10%, the round-trip described above could have resulted in a total move of 20%, in just 5-weeks, and for those who prefer numbers, that would have been over 800-points.

Shame really, as we are not altogether convinced that these conditions won’t persist, and just like Tuesday’s sudden zone change, is it won’t take much to get things started and there is hardly ever any warning, and with the “biggie” June next, if anything is going to kick it off, then this would be the prime candidate we suspect.

 

Range:            4020  to  4145           

Activity:          Poor

Type:              On balance bearish

 

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May 17th, 2021 by Richard

From R3 to the bottom boundary of its zone has been quite a trip for the FTSE.

 

Nb. Our comment from the 05/10/21

London has definitely taken a leaf out of the SPX book, and we have seen the ratios tumble above a rising zone here as well.

Although, being fair, R3 at 7050 on the Tuesday and Wednesday certainly had a very significant role to play, pretty much nailing the intraday highs on both days.

Again, where we fall flat is no longer calculating this index’s ratios daily, because this means we are not sure when the capitulation set in, but we reckon it was during the Thursday, as on that particular day 7050 was the level that saw all the action throughout the day, apart from literally the last ten minutes.

Nevertheless, to see the FTSE willingly and deliberately take on that amount of ratio was a very pleasing sight.

However, the fact it has now fallen two entire levels, to R1, shows just how much derivatives have conceded in the face of such an onslaught.

And, having been so willing to fight it out with R3, it is no surprise that R2 at 7100 didn’t hold the market back at all, if indeed the capitulation happened on Thursday.

So, with R3 now at 7150, and Friday’s intraday high of 7143.46, it will be fascinating to see just how much more they have got, in ammunition and willingness, in taking on this level again once more this week.

And with two weeks still to go, they have plenty of time, and on top of this, we are fully expecting to see the zone move up again, this time to 6950-7050.

Unlike the SPX, at least here you know the bulls are buying those futures forced out by the dynamic delta, unlike over there, where there is no ratio at all in its way.

But, at the end of the day, any further forward momentum in the FTSE now relies on the ratios continuing to capitulate, and all the while the clock is now ticking and the gravitational of the zone will increasingly make its presence felt.

 

Range:            7100  to  7150       

Activity:          Average

Type:              Bearish

 

Nb. Our comment on 05/17/21

 

Wowee, that was certainly quite some ride, and best of all, it should not have come as a surprise at all.

Literally on the day we published the FTSE went up to take on R3 once again at 7150.

Fascinating battle it was too, and quite a robust one with the market even achieving an intraday high of 7164.18.

Tuesday saw the capitulation, and the battle at the other end, this time with the top boundary of its zone was actually a touch and go affair really.

The fact the market closed just inside its zone, at 6947.99, was not a good sign for the bulls, but they persisted, and managed to have a fairly decent Wednesday.

However, the damage had been done, and so it really didn’t need much of an excuse to test the boundary at the other end of its zone, 6850.

Here, on the Thursday, it had a deeper incursion into bearish territory, by 27-points, which is far more than we would have liked, but in the end, it held, although it needed a decent helping hand from across the pond, which also just goes to show how close it was to being as bad here as it was over there.

Now we are in the rollover and expiry week, we are back to our old friend 7050, although this time it is R1.

Essentially, a lot of money has been taken off the table, on both sides mind, so there have been meaningful changes to the ratios.

The zones move to 6950-7050 is looking rather unlikely now, although 6900-7000 is a possibility, we think the real battle will be between the equity bulls and the gravitational force of the zone for the rollover/expiry which will dictate this week.

Also, next up, is the mighty June, our second “biggie” of the year, and this will have a role to play this week, if only because of its size weighing, in every sense of the word, on proceedings.

 

Range:            6950  to  7050       

Activity:          Average

Type:              On balance not bullish

 

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May 12th, 2021 by Richard

Big day for the SPX as it closes in bearish territory.

 

Nb. Our comment from the 05/05/21

 

A rather fortuitous day to publish our next note on the SPX for two reasons.

Firstly, yesterday we saw one of those skittish days we have been blethering about for so long, meaning that readers should have no excuse for not expecting it.

Secondly, we have at last seen a rise in the zone.

And not before time, so it’s not so much the rise but rather the length of time it has taken to achieve it that is the salient point here.

In fact, we would fully expect it to move up again, this time to 4170-4180, and in truth, we think it would be very surprising if even this was it for this expiry.

However, there are two points to note here, and the first is that the zone is still playing catch-up with the market, so we haven’t seen a zone forcing the pace for a very long time, meaning it is almost by default than design that these moves are happening.

Secondly, the retreat in the ratios above the zone are symptomatic of a final week of an expiry’s life, not one half way through.

Although this weakness has been going on for so long, it really has been from the very outset of this trip, which is even more damming.

Overall, the issue still remains that despite these movements, the Y1 ratio bandwidth is still a very impressive 265-points wide.

And the overall Y ratio bandwidth has actually increased by 25-points, to an eye-watering 510-points, or 12.25%.

We are not saying it’s going to happen, but yesterday’s 64.07-point move (1.53%) could just be a warm-up, or worse, a warning.

Whether you are a bull or a bear, just remember you are skating on very thin ice, and like all ice rinks, it only takes a very little impetus to propel things a very long way indeed, and the potential for whipsaw is ever present.

Either way, with two and a half weeks to go, and no meaningful ratio to speak of, this index has carte blanche to do whatever it likes.

 

Range:            4105  to  4255           

Activity:          Moderate

Type:              Bearish

 

Nb. Our comment for 05/12/21

 

For those of you that follow us on Twitter then they knew that the zone changed to 4170-4180 the day it moved, on the 6th May the very next day after our previous note.

This was a significant, and although flagged, even we were a bit surprised at how quickly it came about.

Not because of the depth of the ratios, but because it had taken the previous move so long in a similar situation.

However, that made two moves in two days, a good sign that interest and involvement were picking up.

Also, before this expiry is out, we would fully expect one more move, very probably to 4195-4205, but we still have a week and a half to go, so no rush.

But this is not the real reason why we are leading with the zone, but rather because the market now finds itself below it, and therefore in bearish territory.

This is only day 1 that it has been below its zone, so today is really very critical, as it generally tends to decide whether the bulls or bears are now in charge.

So, 4170-4180 is now a very significant level.

We are not great believers in coincidence, so it is also worth pointing out that the FTSE is also in a similar situation with regard to its zone.

Obviously, our ratio table above gives you the levels, so it really is a case now of who is, or wants to be in charge, as the overall bandwidths have shrunk a bit, with Y1 now standing at 260-points, and the overall Y ratio bandwidth “only” 435-points.

Therefore, if the bulls remain absent, then there is still a huge potential move.

Either way, it looks like this market is gearing up for a volatile end to this expiry, which just hasn’t got off the ground, and still remains one of the biggest Y ratio bandwidths we have ever seen.

And next week is the rollover and expiry, and that is into the second “biggie” of the year, the triple witching June expiry, so we could be in for a hot summer after all.

 

Range:            3995  to  4170           

Activity:          Poor

Type:              On balance bearish

 

Available to buy now

The faction account of the Big Bang, The Great Storm and the market crash of 1987, available in eBook and paperback here, a must read if you don’t believe in history repeating itself.

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