Bullish SPX but all due to a lack of ratio, not an economic view, so act accordingly.
Nb. Our comment from the 05/28/20
It has most certainly been a very interesting battle the SPX has been having with R1 at 3005.
It’s not so much the fact this index has taken two days to get over it, and yesterday it wasn’t until 14:00 EST that it succumbed after an all-day prolonged assault, but rather the fact that this market is now confident enough to even take it on.
Ok, admittedly, it is only R1, so the dynamic delta futures selling is not really that much, but in the circumstances, even this small amount assumes a far greater significance.
Unlike the months preceding the correction, this time, the market is bizarrely doing nothing wrong.
That is unless it doesn’t take heed of this dynamic delta, and at the very least, retreat back to its zone.
Which, significantly, will very likely move to 2895-2905, so it’s not that big an ask.
But, if it continues to hammer away at the R ratios, ignoring the realities, then we are right back to where we were at the start of this year, namely, facing another rout. For further explanation please see any of our articles from Oct 2019 up to March 2020.
Again, we are totally nonplussed as to why the authorities in question seem to think this situation is acceptable, which to us, is even more bizarre than the markets themselves.
Please note R2 has slipped back to where it was, 3085, and hence our trading range, but please take note, where it came from, 3055, still represents a “step-up”.
Also, please note how little activity there is, and its nature, and we haven’t seen it all one-way for quite a while (no “on balance” description used).
Essentially this means, derivatives are not buying (in every sense) this move.
Range: 3005 to 3085
Activity: Extremely poor
Type: Bearish
Nb. Our comment for 06/03/20
To be fair we should have posted something before now, as it was becoming exceedingly obvious that the ratios above the zone were collapsing.
Nevertheless, our “step-up” level of 3055 certainly had a strong role to play in the last few days of May.
Basically, it capped the market.
On Monday, the 1st June, we noticed R1 had slipped to 3030 and R2 to 3105, which is where they are today.
This changed the step-up level to 3085, which is what curtailed the market yesterday we believe.
The ratios above the zone continue to slip, but it is not as pronounced as it was.
But, to see real confirmation, we need to see more upward movement in the ratios below the zone.
Having said that, the zone has moved up as expected, so two out of three bullish indicators isn’t bad.
What we really don’t like, is that people mistake this upward movement as economic bullishness, as, to us at least, it is just the totally normal outcome of a market that hasn’t got a properly established ratio profile.
A rise by default, rather than design, if you like.
Again, a bit of understanding and basic market understanding by the regulators would go a long way to establishing a rational appreciation of exactly why this market is back above 3000, as it certainly has absolutely nothing to do with economic expectations.
Range: 3030 to 3105
Activity: Poor
Type: On balance bearish
The faction account of the Big Bang, The Great Storm and the market crash of ’87, available in ebook or paperback here
The FTSE is still stuck in its R2 Ratio Bandwidth.
Nb. Our comment from the 05/27/20
Well there is no denying it, but London was, and to an extent, still is, in a mess.
Well, ratio wise at least.
When the FTSE closed the May expiry, on the 15th May, at 5799.77, but far more importantly, having traded down as low as 5741.54, we reckoned it could be an explosive start to the June expiry.
The point being, that the mighty DR ratio, was down there at 5750.
Obviously, we were therefore not disappointed or surprised, by the huge leap up of 248.82-points to 6048.59 on Monday 18th May.
It then stalled, but was happily now at the top end of the R3 ratio bandwidth.
Yesterday, we saw the intraday high of 6130.12, and being at the end of a 136.84-point early morning jump, this was very probably a test of 6150.
Today, 6150 is now R2, so it really just depends on how much of a bloody nose they got.
The zone should probably be 6450-6550, but things have moved so far and so fast, the market simply has not adjusted.
Sadly, the FTSE is caught in some heavy ratio bandwidths, severely restricting its movement, which is the absolute opposite of the SPX, which has happily utilised all its vast swathe of minimal Y ratio to get back over 3000.
Two very different markets, courtesy of very different ratio profiles.
Range: 5950 to 6150
Activity: Very poor
Type: Neutral
Nb. Our comment on 06/01/20
Well London is still in a mess, but it has been tidied up a bit at least.
Sadly though, it failed to hold on to its move above 6150, which was bit of an epic battle, so not a good result really.
After the first test on Tuesday 26th, the first day back after the Bank Holiday, the market basically camped out on 6150 all day on the Wednesday, before closing at 6144.25.
Then on Thursday there was no holding it back as it burst out of the R3 ratio bandwidth it was in (5950 to 6150) and into the R2 one above it.
The fact it has fallen back in means it has it all to do again, although this time, there will be no surprise what is waiting for it at 6150.
In the meantime, the zone has fallen to 6450-6550, which is a lot closer than it was, but this still puts it quite some way away.
The problem is not so much with this, but rather the US markets are at the other end of the ratio scale, so will very probably be no help at all, and might actually work against.
Which was very much the case when the US gave up all its gains when London was closed on Thursday, the SPX having hit our old R2 level and which was now what we call a “step-up”, resulting in a very weak market on Friday and the FTSE relinquishing 6150.
The good news is that thee is still three weeks to go, so plenty of time, but for the foreseeable, all we can see for London, is it being stuck in one bandwidth or another.
Range: 5950 to 6150
Activity: Moderate
Type: Bullish
A faction account of the Big Bang, The Great Storm and the market crash of 1987.
Very significant battle the SPX has just had with R1, as is that it won.
Nb. Our comment from the 05/26/20
With the potential to make big moves, the SPX has certainly had a quiet week.
Essentially ending up exactly where it started.
In the meantime, the ratios have developed, much more so than the “poor” activity level suggests.
In fact, it only missed being the next level up, “moderate” by a whisker, and as this is a triple, and it includes the Memorial Day holiday, this is actually a very acceptable level.
Also, don’t be fooled by the fact it is only the ratios above the zone that have had any meaningful moves.
As we said, there is no Y ratio below the zone, so already being in the R ratios, this means there is a lot further for these to climb to go up a level, especially as the ratios are exponential.
Whereas, above the zone, as R2 didn’t even start until it was 280-points above the zone, meant it is a lot easier for those to climb, and therefore move in towards the zone.
The fact that this index is clear all the way up to 3005 is very ironic to us, as those that remember the last months of 2019 and the first few of 2020 will know that we routinely said that this index could drop at least 8% in a blink of an eye.
Considering the all-time high was 3390, that puts an 8% drop in the region of 3100.
In fact, back in early March R1 below the zone actually kicked in at 3145.
So, here we are, an entire pandemic (almost) later, and an economy decimated, and the market is back to where it should have been, albeit without the hyperbole.
Sheer madness, but then again, it’s not doing anything wrong, this time at least, against the ratios.
Range: 2805 to 3005
Activity: Poor
Type: Neutral
Nb. Our comment for 05/28/20
It has most certainly been a very interesting battle the SPX has been having with R1 at 3005.
It’s not so much the fact this index has taken two days to get over it, and yesterday it wasn’t until 14:00 EST that it succumbed after an all-day prolonged assault, but rather the fact that this market is now confident enough to even take it on.
Ok, admittedly, it is only R1, so the dynamic delta futures selling is not really that much, but in the circumstances, even this small amount assumes a far greater significance.
Unlike the months preceding the correction, this time, the market is bizarrely doing nothing wrong.
That is unless it doesn’t take heed of this dynamic delta, and at the very least, retreat back to its zone.
Which, significantly, will very likely move to 2895-2905, so it’s not that big an ask.
But, if it continues to hammer away at the R ratios, ignoring the realities, then we are right back to where we were at the start of this year, namely, facing another rout. For further explanation please see any of our articles from Oct 2019 up to March 2020.
Again, we are totally nonplussed as to why the authorities in question seem to think this situation is acceptable, which to us, is even more bizarre than the markets themselves.
Please note R2 has slipped back to where it was, 3085, and hence our trading range, but please take note, where it came from, 3055, still represents a “step-up”.
Also, please note how little activity there is, and its nature, and we haven’t seen it all one-way for quite a while (no “on balance” description used).
Essentially this means, derivatives are not buying (in every sense) this move.
Unique Ratio profile in the FTSE for the June expiry.
Nb. Our comment from the 05/22/20 (Not published)
Nb. Our comment on 05/27/20
Well there is no denying it, but London was, and to an extent, still is, in a mess.
Well, ratio wise at least.
When the FTSE closed the May expiry, on the 15th May, at 5799.77, but far more importantly, having traded down as low as 5741.54, we reckoned it could be an explosive start to the June expiry.
The point being, that the mighty DR ratio, was down there at 5750.
Obviously, we were therefore not disappointed or surprised, by the huge leap up of 248.82-points to 6048.59 on Monday 18th May.
It then stalled, but was happily now at the top end of the R3 ratio bandwidth.
Yesterday, we saw the intraday high of 6130.12, and being at the end of a 136.84-point early morning jump, this was very probably a test of 6150.
Today, 6150 is now R2, so it really just depends on how much of a bloody nose they got.
The zone should probably be 6450-6550, but things have moved so far and so fast, the market simply has not adjusted.
Sadly, the FTSE is caught in some heavy ratio bandwidths, severely restricting its movement, which is the absolute opposite of the SPX, which has happily utilised all its vast swathe of minimal Y ratio to get back over 3000.
Two very different markets, courtesy of very different ratio profiles.
Range: 5950 to 6150
Activity: Very poor
Type: Neutral
The Faction account of the Big Bang, The Great Storm and the market Crash of 1987, available here
We don’t think it is coincidence either, that as the June expiry zone remained throughout at 2795-2805, that the expiring May was pulled down back towards this level.
So, what about June, and, more importantly, what to expect.
Firstly, we have discounted Monday’s move, as we see this as just the direct result of June forcing the May expiry back down towards 2800’s, when it really wanted to be around the 2900’s.
Once this works its way out of the system, then there are a couple of formalities to point out.
One is that this is the second triple of 2020, and therefore prone to big moves.
Second, this is a five-week expiry, so a lot longer than usual.
Now, this is out of the way, looking at the overall level of ratio it is appalling, dire even, and especially so for a triple.
And, it’s far more than just a lack thereof, as it is the dispersal as much as anything, as there is hardly any increase going on as one moves away from the zone, in either direction.
For a triple, we should be seeing at least one, sometimes two, levels of B ratio.
However, what is more normal, is the lack of Y ratio below the zone, which used to be quite common in a triple.
However, this can’t be said for above the zone, where there is just over 200-points.
No prizes for guessing the path of least resistance for this market.
But, as triples used to, quite normally, travel between the high R, DR or even the B ratios, over the course of an expiry, there is really nothing here that should give it any undue cause for concern if it put its mind to it.
Basically, about 400-points either side of the zone should cover it, and whether or not your bullish or bearish, we personally don’t think this degree of potential range over a five-week period is a good thing.
Perhaps fundamental analysis will clear everything up, but we are not holding our breathe.
Range: 2805 to 3005
Activity: Poor
Type: Neutral
Nb. Our comment for 05/26/20
With the potential to make big moves, the SPX has certainly had a quiet week.
Essentially ending up exactly where it started.
In the meantime, the ratios have developed, much more so than the “poor” activity level suggests.
In fact, it only missed being the next level up, “moderate” by a whisker, and as this is a triple, and it includes the Memorial Day holiday, this is actually a very acceptable level.
Also, don’t be fooled by the fact it is only the ratios above the zone that have had any meaningful moves.
As we said, there is no Y ratio below the zone, so already being in the R ratios, this means there is a lot further for these to climb to go up a level, especially as the ratios are exponential.
Whereas, above the zone, as R2 didn’t even start until it was 280-points above the zone, meant it is a lot easier for those to climb, and therefore move in towards the zone.
The fact that this index is clear all the way up to 3005 is very ironic to us, as those that remember the last months of 2019 and the first few of 2020 will know that we routinely said that this index could drop at least 8% in a blink of an eye.
Considering the all time high was 3390, that puts an 8% drop in the region of 3100.
In fact, back in early March R1 below the zone actually kicked in at 3145.
So, here we are, an entire pandemic (almost) later, and an economy decimated, and the market is back to where it should have been, albeit without the hyperbole.
Sheer madness, but then again, it’s not doing anything wrong, this time at least, against the ratios.
Range: 2805 to 3005
Activity: Poor
Type: Neutral
The story of the Big Bang, The Great Storm and the crash of ’87.
We did not publish a comment on the June expiry, only on the May one.
Which, for the record, settled at 2827.52, and, in the end, our zone had moved back down to 2845-2855.
Although, and as we said at the time, anywhere in the Y ratios would be fine.
And as it happened, the zone, which is zero, or no ratio at all, had gone from 2795-2805, up to 2895-2905, and then back down 2845-2855.
So, with the market finishing amid the range the zone was fluctuating in, which it couldn’t do unless the ratio levels were minimal, it better than we ever would have hoped to achieve at the start of this expiry.
Nb. Our comment for 05/19/20
We don’t think it is coincidence either, that as the June expiry zone remained throughout at 2795-2805, that the expiring May was pulled down back towards this level.
So, what about June, and, more importantly, what to expect.
Firstly, we have discounted Monday’s move, as we see this as just the direct result of June forcing the May expiry back down towards 2800’s, when it really wanted to be around the 2900’s.
Once this works its way out of the system, then there are a couple of formalities to point out.
One is that this is the second triple of 2020, and therefore prone to big moves.
Second, this is a five-week expiry, so a lot longer than usual.
Now, this is out of the way, looking at the overall level of ratio it is appalling, dire even, and especially so for a triple.
And, it’s far more than just a lack thereof, as it is the dispersal as much as anything, as there is hardly any increase going on as one moves away from the zone, in either direction.
For a triple, we should be seeing at least one, sometimes two, levels of B ratio.
However, what is more normal, is the lack of Y ratio below the zone, which used to be quite common in a triple.
However, this can’t be said for above the zone, where there is just over 200-points.
No prizes for guessing the path of least resistance for this market.
But, as triples used to, quite normally, travel between the high R, DR or even the B ratios, over the course of an expiry, there is really nothing here that should give it any undue cause for concern if it put its mind to it.
Basically, about 400-points either side of the zone should cover it, and whether or not your bullish or bearish, we personally don’t think this degree of potential range over a five-week period is a good thing.
Perhaps fundamental analysis will clear everything up, but we are not holding our breathe.
Essentially, this index is just treading water, which is a good thing.
Especially in light of our comments above.
In the meantime, since we last commented, the market went back above 2900, but significantly seemed to struggle in the Y2 ratio.
Back on the 29th April don’t forget, Y2 started at 2905.
Today, it starts at 2955, and although we didn’t calculate the ratios between our comments, it seems remarkably coincidental that the intraday high in this period was 2954.86.
Whatever, the fact that Y2 is, or has, slipped, is bullish, as is the fact that the ratios below the zone are building.
The caveat to all this, is that the increase below the zone is hardly rampant, and, above it, although Y2 has slipped, all the other ratios have come in, in other words also increased.
Don’t also forget, that back on the 22nd and 23rd April, this index closed inside its zone (2799.31 & 2797.80).
And, on Monday this week, its intraday low was 2797.85, which we are happy to take as another test of its zones bottom boundary, especially considering it came at the end of a nigh on 50-point drop.
It has plenty of room for manoeuvre within its Y1 ratio bandwidth, and, at the end of the day, we are surprised to see it react so sensitively to the minimal Y2, but we just report what is, not speculate as to why.
So, don’t get fooled, as the way this market is acting is not particularly bullish, and it is running out of support at 2795, having tested it three times already, but what action there is, is keeping it in bullish territory, so this is its predilection at the moment.
Range: 2805 to 3165
Activity: Moderate
Type: On balance bearish
Nb. Our comment for 05/13/20
Look it’s not by design, and nor is it coincidence, that our last comment was when the market closed at 2868.44, and the one before that was 2863.39, and this is 2870.12.
Basically, it just highlights that this market is trying very hard to make it look, and more importantly feel, like it is exciting and going somewhere.
The most significant thing to re-mention, is how sensitive this market is (see above), and as it had already tested Y2 at 2955 with the intraday high of 2954.86, the fact that Monday and Tuesday fell a bit short is symptomatic of a market that doesn’t want to encounter even that minimal dynamic delta futures selling again.
Also, and again as mentioned above, its predilection was in bullish territory, so we are furthermore not surprised by it staying in the vicinity.
And, this is our oversight, as we should have mentioned in our last comment (so, not above) that there were two possible new zones developing, 2845-2855 and 2895-2905.
So, we are not surprised to see the zone move, and looking at the numbers it suggests that this was a few days ago now, but we can appreciate everyone else being caught out.
The interesting aspect, is that it doesn’t look as if the zone could flip back, as the depth of ratio there has filled in quite nicely.
Having just said that, although Y2 hasn’t changed at 2955 above the zone, the other ratios have, so they have strengthened on both sides, which is essentially a neutral signal.
But, with the rollover and expiry imminent, there is still an amazing 150-points of Y1 ratio bandwidth, so staying anywhere within that is an outstanding achievement in these times in our opinion.
Range: 2795 to 2895
Activity: Moderate
Type: On balance only just bearish
The story of the Big Bang, The Great Storm and the crash of ’87.
What a fantastic week, or at least it should have been, if you knew where the ratio levels were.
It was a textbook set-up, to get above 5850, and after a hesitant start last Tuesday it blasted straight through.
Which is why we published two trading ranges, the second being on the assumption that the market would do just this.
What we didn’t expect, was for the market to use up virtually its entire 200-point trading range in the one day.
On the Wednesday it also went straight through R2, which was rather punchy at the time, especially under current conditions.
This left R3 as the next line of resistance, at 6150, and on Thursday the market hit it, with the intraday high of 6151.58.
This they couldn’t ignore, and the turnaround was as if it had hit the proverbial brick wall.
The ensuing 253.61-point capitulation was very impressive, to say the least.
Friday, saw the intraday low of 5746.06, which is the first test of the top boundary of the zone.
It would make sense for this market to try and stay inside its zone, where it is in neutral territory.
The problem, may well be if it tests the lower boundary, as hopefully it will hold, but if it doesn’t, this market will be back into bear territory, and that is an entirely different matter completely.
Range: 5650 to 5750 or 5750 to 5850
Activity: Moderate
Type: Neutral
Nb. Our comment on 05/11/20
The only change to the ratios is R1 at 5850 has fallen to Y2.
We suspect this happened on Thursday, the last day this market was open, primarily because the way the index acted.
In our last comment on Monday 4th May this index had bounced all the way back from its test of R3 at 6050 (intraday high 30th April 6151.58) and was just above its zone.
That Monday saw it close at 5753.78, just above the upper boundary, so it had essentially made its choice.
Then Tuesday and Wednesday it was all about 5850, which is why we believe it was still R1 on those days, closing at 5849.42 and then 5853.76.
Quite the epic battle, and which revealed the market had developed a far greater degree of sensitivity.
As it stands, this market is now clear up to 6050, but don’t forget this week it is the rollover and expiry.
And, significantly, the next expiry is the second big triple of this year, and as such should bring its massive weight to bear sooner rather than later.
And our preliminary analysis of the June expiry is not a pretty picture, essentially because it is still reflecting things as they were, and not the post Caronavirus environment.
It should become a lot clearer once the rollover has taken place, but as it stands, it would certainly not be getting in the way of the May expiry finishing as high as possible.
Range: 5750 to 6050
Activity: Very poor
Type: On balance only just bearish
The story of the Big Bang, The Great Storm and the crash of ’87.
Sadly, this is just the scenario we are afraid of.
Basically, the market isn’t going up because everybody believes the crises is over, it’s going up because there is no ratio to oppose it.
Again, the regulators should be aware of market dynamics, and take great pains to avoid exactly this sort of situation, as it only leads to false, and therefore misleading, interpretations.
The fact of the matter is, R1, above the zone, still does not kick in until 3205.
Where this is a distinct improvement from 3305 (on the 24th), what it means in practice, is that this index could easily recover back up to the 3300’s.
And that, to us at least, is dangerous, as it will be as if nothing has happened, and even the most isolated person in the world, knows that this is just not the case.
Take into consideration that we were looking for a 10% contraction anyway, this being how overstretched it had become, means that if this is the case, then there has been no adjustment for the economic impact that we have witnessed in the last 6-weeks at all, which is madness.
The astute may want to take note of the fact the corresponding R1 ratio does not appear until 2595, so this could most easily become a two-way street.
However, this time, there is no B1 at 2195 to come to the rescue.
It may be worthwhile comparing this index to the FTSE, as at least that has some ratio, and is reacting to it, so, you know, that there is money, and therefore, belief, backing that move.
Contrast that to the activity registered here, and perhaps worth knowing that yesterday, it was “moderate”, so hardly representative of players falling over themselves to get involved.
Hopefully, we are wrong, but this is just the sort of move, that screams beware to us, as it should, but won’t, to the regulators.
Range: 2805 to 3205
Activity: Only just registered
Type: On balance bullish
Nb. Our comment for 06/06/20
Essentially, this index is just treading water, which is a good thing.
Especially in light of our comments above.
In the meantime, since we last commented, the market went back above 2900, but significantly seemed to struggle in the Y2 ratio.
Back on the 29th April don’t forget, Y2 started at 2905.
Today, it starts at 2955, and although we didn’t calculate the ratios between our comments, it seems remarkably coincidental that the intraday high in this period was 2954.86.
Whatever, the fact that Y2 is, or has, slipped, is bullish, as is the fact that the ratios below the zone are building.
The caveat to all this, is that the increase below the zone is hardly rampant, and, above it, although Y2 has slipped, all the other ratios have come in, in other words also increased.
Don’t also forget, that back on the 22nd and 23rd April, this index closed inside its zone (2799.31 & 2797.80).
And, on Monday this week, its intraday low was 2797.85, which we are happy to take as another test of its zones bottom boundary, especially considering it came at the end of a nigh on 50-point drop.
It has plenty of room for manoeuvre within its Y1 ratio bandwidth, and, at the end of the day, we are surprised to see it react so sensitively to the minimal Y2, but we just report what is, not speculate as to why.
So, don’t get fooled, as the way this market is acting is not particularly bullish, and it is running out of support at 2795, having tested it three times already, but what action there is, is keeping it in bullish territory, so this is its predilection at the moment.
Range: 2805 to 3165
Activity: Moderate
Type: On balance bearish
The story of the Big Bang, The Great Storm and the crash of ’87.
Three very solid attempts to breach R1 at 5850 throughout the day, each one lasting a good fifteen minutes, so not just spikes.
Obviously, didn’t quite have enough, and, as we said, we thought it would be a stern test.
Then, in the last quarter of an hour of real time trading, the market got back up to 5829.49.
And, our old friend, the auction, took it back up to within spitting distance for tomorrow.
Absolutely classic.
However, the most important aspect for us, is that the bulls are very evidently back, and, more to the point, willing to take on R1 without running away scared.
The only ratio to change, is R3 below the zone.
The implication of this, is not that it is static, but rather the zone could still easily be 5550 all the way up to 5750 (apologies for the typo on the 24th when we said 5650 to 5750).
So, make no mistake, there is still a considerable risk out there, but at least it is a far more balanced and rational market, at present at least.
Range: 5750 to 5850 or 5850 to 6050
Activity: Moderate
Type: On balance only just bullish
Nb. Our comment on 05/04/20
What a fantastic week, or at least it should have been, if you knew where the ratio levels were.
It was a textbook set-up, to get above 5850, and after a hesitant start last Tuesday it blasted straight through.
Which is why we published two trading ranges, the second being on the assumption that the market would do just this.
What we didn’t expect, was for the market to use up virtually its entire 200-point trading range in the one day.
On the Wednesday it also went straight through R2, which was rather punchy at the time, especially under current conditions.
This left R3 as the next line of resistance, at 6150, and on Thursday the market hit it, with the intraday high of 6151.58.
This they couldn’t ignore, and the turn around was as if it had hit the proverbial brick wall.
The ensuing 253.61-point capitulation was very impressive, to say the least.
Friday, saw the intraday low of 5746.06, which is the first test of the top boundary of the zone.
It would make sense for this market to try and stay inside its zone, where it is in neutral territory.
The problem, may well be if it tests the lower boundary, as hopefully it will hold, but if it doesn’t, this market will be back into bear territory, and that is an entirely different matter completely.
Range: 5650 to 5750 or 5750 to 5850
Activity: Moderate
Type: Neutral
The definitive story of the Big Bang, The Great Storm and the crash of ’87.
