As we said last week, “7550 is a massive level now”, and on Friday the intraday low was 7551.00.
But on the Tue and Thu either side of the New Year break the intraday low was 7532.38 and 7542.44 respectively.
So, Fri made that strike 3, and we wouldn’t expect it to hold out again.
Even more so as the ratios have slipped there, and so, as 7550 stands, it only just makes the threshold of R2, so it might be better to think of it as R1 as the day goes on.
In perspective, this means R1 is going up against the dynamic delta that goes with DR ratio, and really there should only ever be one winner in that fight.
Although, finishing up 18-points on Fri was bit of a surprise, no matter that 7550 was R2.
So, for us, this is still a very scary situation, with now only R1 standing in the way of this market racing down to its zone, 200-points away.
Of course, we can’t ignore its resilience, but at the same time we can’t ignore that this expiry remains in a very precarious position.
How the new geopolitical scenario will play out, who knows, but to us, this has only just increased the potential of “a scare”, as the risks are still the same as they were.
In fact, the only ratio to actually change, is B1 which slips out a fraction.
Perhaps worth remembering is that this expiry is only just at the half way stage, so you have two more weeks of this.
Range: 7550 to 7650
Activity: Very poor
Type: On balance bullish
Nb. Our comment on 01/13/20
So, 7550 remains “a massive level”.
However, for slightly different reasons as the ratios have evolved around it.
Nevertheless, we should point out that since that test of 7650, or what was DR ratio, way back on the 27th December, the FTSE has been frightened to go back there again.
And, lets face it, what with constant record highs Stateside, it’s not as if it hasn’t had ample opportunity.
In fact, a fortnight worth of opportunity, which in market terms is an eternity.
In our last comment, 7550 was the demarcation line between the R ratios and Y ratio, now it is the upper boundary of the zone, which has conveniently moved.
This means rather than 7550 sitting on top of an abyss of Y ratio, that went all the way down to 7350, it is now just the gateway to the zone.
Rather handy considering this is rollover, with the expiry on Friday.
It will get very fruity next week, it always does over the expiry, but with the added geopolitical situation it’s a given.
Therefore, the real new demarcation line may well now prove to be 7450.
This being the bottom boundary of the new zone, and if that capitulates, then there is an awful lot of Y ratio beneath that.
At the end of the day, considering the circumstances, to even be in with a shout of a normal expiry is a result.
But it will be a long week, and after the Dec expiry, Wed will be very significant.
It is always tricky at this time of year, what with half days and Europe being closed for 2 days but the US for only one.
So, thin markets, which are vulnerable to the Santa rally, or what we refer to as the “Bonus Rally”, but there are aspects already apparent for the Jan expiry, now just a few days old.
The first is how very thin it is, with the highest level of ratio being just R3.
Secondly, how much Y ratio there is around.
Thirdly, where the market is currently in relation to the ratio and zone levels.
However, comparing the 18th to the 27th (right to left in the above table) it is plainly obvious the ratios are building below the zone, and retreating above it, both bullish.
As is the fact the zone should soon start moving upwards.
In opposition, is the fact the index is already in the R2 ratio bandwidth with only R3 above, just over 1% away.
What should be a sobering thought, is that the corresponding R ratios do not even start until 3045, an impressive 200-points away.
It may not get a scare, and like Dec, just keep knocking on that ratio door until it gives way, but you should at least be aware that should the bulls commitment waver there is next to nothing below this market to give it any support, which gets our alarm bells ringing at least.
Range: 3230 to 3280
Activity: Average
Type: Bearish
Nb. Our comment on 01/07/20
We probably should have said in our last comment that the zone was looking likely to move to where it has, so, to avoid the same mistake, it is also very likely to move to 3195-3205 before the end of this expiry.
This is bullish, as is the fact the ratios have built below the zone and weakened above it.
However, this has to be the case for the zone to move.
What is more important is the manner, in that if the ratio declines from say R1 to allow the zone to move in to that vacated space, then that is far more impressive than it just triumphing over the minimal Y1.
In fact, moving up into Y1 is almost more like osmosis rather than an aggressive takeover.
But credit where it is due, as at least its upwards.
And it is all well and good as things stand, but don’t ignore the fact that this index is extremely vulnerable to a shock, as there is still an absolutely massive Y Ratio bandwidth of 185-points.
Even more if you go from R2, which it has been challenging, down to the corresponding R2, which is 260-points.
As ever, it may not happen, and it could turn out to be one of those that continue to just knock on the retreating ratio door, but that doesn’t mean the risk is not there.
The question perhaps should be, is why there is no ratio building up to support this market?
There are going to be quite a few nursing a sore wallet after the Dec expiry for sure.
The good news is that it hasn’t stopped them from playing in the Jan expiry.
However, that’s where the good news ends, as this expiry is rather messed up, and half days and closed days are not exactly helping get it sorted.
Bizarrely the zone has actually fallen, which is bearish, but at least this has put some Y ratio either side now.
The problem was the FTSE opened up on Monday at 7582.48, which meant it was above 7550, then around R3, but now R2.
On top of which 7650 has remained at DR, and this index’s intraday high on Friday was 7665.40, having basically traded the entire day up until the Street opened, in the narrowest of margins, between 7650 and 7660.
Conservative majority, Brexit, or whatever, in the Jan expiry this index should just not be taking on DR ratio.
In fact, it is in a remarkably similar situation to the SPX, in that all’s well as long as the bulls remain committed and willing to keep knocking on the ratio door until it gives way.
But, if there is a scare, then there is virtually no ratio support until you get down to 7150, a very scary 500-points away.
So, for us at least, the risk profile is very high, and 7550 is a massive level now, with huge implications.
Range: 7550 to 7650
Activity: Good
Type: Neutral
Nb. Our comment on 01/06/20
As we said last week, “7550 is a massive level now”, and on Friday the intraday low was 7551.00.
But on the Tue and Thu either side of the New Year break the intraday low was 7532.38 and 7542.44 respectively.
So, Fri made that strike 3, and we wouldn’t expect it to hold out again.
Even more so as the ratios have slipped there, and so, as 7550 stands, it only just makes the threshold of R2, so it might be better to think of it as R1 as the day goes on.
In perspective, this means R1 is going up against the dynamic delta that goes with DR ratio, and really there should only ever be one winner in that fight.
Although, finishing up 18-points on Fri was bit of a surprise, no matter that 7550 was R2.
So, for us, this is still a very scary situation, with now only R1 standing in the way of this market racing down to its zone, 200-points away.
Of course, we can’t ignore its resilience, but at the same time we can’t ignore that this expiry remains in a very precarious position.
How the new geopolitical scenario will play out, who knows, but to us, this has only just increased the potential of “a scare”, as the risks are still the same as they were.
In fact, the only ratio to actually change, is B1 which slips out a fraction.
Perhaps worth remembering is that this expiry is only just at the half way stage, so you have two more weeks of this.
There are going to be quite a few nursing a sore wallet after the Dec expiry for sure.
The good news is that it hasn’t stopped them from playing in the Jan expiry.
However, that’s where the good news ends, as this expiry is rather messed up, and half days and closed days are not exactly helping get it sorted.
Bizarrely the zone has actually fallen, which is bearish, but at least this has put some Y ratio either side now.
The problem was the FTSE opened up on Monday at 7582.48, which meant it was above 7550, then around R3, but now R2.
On top of which 7650 has remained at DR, and this index’s intraday high on Friday was 7665.40, having basically traded the entire day up until the Street opened, in the narrowest of margins, between 7650 and 7660.
Conservative majority, Brexit, or whatever, in the Jan expiry this index should just not be taking on DR ratio.
In fact, it is in a remarkably similar situation to the SPX, in that all’s well as long as the bulls remain committed and willing to keep knocking on the ratio door until it gives way.
But, if there is a scare, then there is virtually no ratio support until you get down to 7150, a very scary 500-points away.
So, for us at least, the risk profile is very high, and 7550 is a massive level now, with huge implications.
It is always tricky at this time of year, what with half days and Europe being closed for 2 days but the US for only one.
So, thin markets, which are vulnerable to the Santa rally, or what we refer to as the “Bonus Rally”, but there are aspects already apparent for the Jan expiry, now just a few days old.
The first is how very thin it is, with the highest level of ratio being just R3.
Secondly, how much Y ratio there is around.
Thirdly, where the market is currently in relation to the ratio and zone levels.
However, comparing the 18th to the 27th (right to left in the above table) it is plainly obvious the ratios are building below the zone, and retreating above it, both bullish.
As is the fact the zone should soon start moving upwards.
In opposition, is the fact the index is already in the R2 ratio bandwidth with only R3 above, just over 1% away.
What should be a sobering thought, is that the corresponding R ratios do not even start until 3045, an impressive 200-points away.
It may not get a scare, and like Dec, just keep knocking on that ratio door until it gives way, but you should at least be aware that should the bulls commitment waver there is next to nothing below this market to give it any support, which gets our alarm bells ringing at least.
The FTSE has definitely been stuck in our trading range since we last posted, namely 7100 to 7250.
Although the support does tend to kick in a bit more above 7100 than we would like, specifically around 7135, but it is after all a very serious level.
And probably why over the last 7 days 5 of them have tested this low.
If 7100 was to give way then 7000 would be the next stop.
On a more positive note, the zone is again very likely to move to 7150-7250, which also explains why the half way (7125) between the current support at 7100 may well be receiving a bit of unintentional assistance from 7150, the bottom of the new zone.
However, it is the other end of the trading range, 7250, that is of more interest at present.
Essentially, because the last 4 days have seen intraday highs of 7241.50, 7255.73, 7234.40 and 7250.67.
Again, but this time, R1 at 7250, may well be receiving a bit of unintentional assistance from 7250, the top of the new zone, when, or if, it does move.
It is a bit of a grey area, the point at which it becomes likely to move and when it actually does, made worse by this being the biggest of the big expiries, which means it doesn’t do anything quickly.
But, it better sort itself out soon, as next week it’s the rollover and expiry, and Decembers are very rarely dull affairs.
Range: 7100 to 7250
Activity: Very poor
Type: Bearish
Nb. Our comment on 12/19/19
Considering the last December election was in 1923 one can excuse derivatives for getting caught out, especially as they were not even around then.
They were around back in 1987, when we last saw this degree of Tory majority, but it is fair to say that then the derivative market was a very far cry indeed from today’s incarnation.
To be fair it was always going to be tough, as this expiry is the culmination of the entire year, and this election, with everything riding on it, was only called but a month or so ago.
Having tangled with 7450 before, it was interesting to see the market shy away from another go at it on the actual day, the 12th, the intraday high being 7429.04.
It was the Monday, when the full extent of what had happened and its ramifications had sunk in, that did the damage, although 7450 did put up bit of a fight.
However, the sharp eyed would have noticed the intraday high that day was 7552.65.
The market didn’t go there again on Tuesday, but on Wednesday it did everything it possibly could to break through, with numerous tests.
So, no doubt where equities and fundamentals want to take this market, the only problem is the expiry.
Also, no doubt, derivatives have been swept along and aside by the landslide, and so are currently trying desperately to adjust. There is no better example of this than 7450, which was DR, but is now just R2, an enormous fall in just a few days.
The only question now, for us at least, is will they do so in time for Friday?
Sometimes equities do win, for sure, but this is already a massively expensive expiry for the option boys, and likely to get more so, which is going to really hurt.
The static zone is but a minor concern, as with so much Y ratio around it will move, it is really just a matter of when.
As we have mentioned the Dec expiry is the biggest of the big, and considering the volumes we are seeing this year, it could actually beat last year, making it one of the biggest ever.
However, one of the drawbacks of this gargantuan volume, is that it doesn’t move very quickly, hence the static zone.
Furthermore, it is just as well it keeps knocking on the R3 door, as if it got a shock, as things stand, the zone at 2995-3005 is a very long way away indeed, and nothing but Y ratio in-between, and for a triple, that is tantamount to no ratio, which means no support.
Again, and as we mentioned last time, that this market has been to 3155 before (3154.26 on 27th Nov), and despite it remaining at R3, you know the market knows what to expect should it go there again.
Additionally, you also know, that with R2 slipping 25-points, and DR 10-points, either side of it, that the ratios above the zone are in full retreat mode, so don’t expect it to hold for much longer.
Therefore, it might be worth knowing that 3175 is what we call a “step-up”, so that will soon become the next R3 level.
Past experience suggests to us, that in, or by, next week’s rollover and expiry, the zone will settle at 3095-3105, which is still a way below the current market, so please bear this in mind, especially as the rollover is now but 4 trading days away.
Range: 3130 to 3155
Activity: Moderate
Type: Bearish
Nb. Our comment on 12/18/19
It is exactly this sort of expiry that should make the regulators very nervous indeed, but pound to a penny they are totally ignorant of the inherent risk over the remainder of this week.
Of course, they should be, and by not being, makes it seem all the worse should anything happen.
It is not the zone, well not entirely, as it will move to 3095-3105, even though this is still 100-points below the market.
However, 4% is not really that big an issue.
It is more to do with why, or how, this expiry has evolved, as it never really retrenched.
But, at the same time, the ratio below the zone hasn’t built up sufficiently to get the zone moving upwards.
Rather, it has been the capitulating ratio, where the market has been knocking on the “ratio door” all the way up, almost sucking this market higher.
Also, it hasn’t quite made the biggest expiry ever by volume, basically because a lot of call activity has been cashing in (hence the capitulating ratio), but going the other way, where it has been very decent activity, just not enough to shift the zone.
This means only one thing, lots of short sellers of way OTM puts thinking its easy money.
This is why they should be very nervous, irrespective of the fact the corresponding R3 doesn’t appear until 2895, and that is a percent that would scare most.
May well pass unnoticed, but that doesn’t mean one should ignore the risk.
The top end of our trading range before Thanksgiving was 3165, and we must apologies, as we forgot to mention what we call a “step-up” in the ratios at 3155.
This is where, within a bandwidth, in this case R3, the actual numerical ratio is closer to the next level up, as opposed to the one below.
Quite often, as the ratios move, these levels get revealed as a level in their own right.
This is what has happened here, as the step-up at 3155 on the 26th has become R3 in its own right.
We mention this as this index, intraday on the 27th, reached 3154.26, so it has already been here once, so knows what to expect, although back then it was a lot nearer to DR than it is today.
This just highlights what we said last time, the ratios below are building, and those above the zone slipping, both of which are bullish.
The static zone is not, nor is the fact it is over 100-points below the current level.
But, don’t forget that this is the mighty Dec expiry, so it is absolutely massive, and this year is the biggest we have seen for some time.
Although it hasn’t yet reached the proportions of last year, but easily swamps the preceding 4 years before that.
We mention this as it is very unusual, considering its size, to see any Y ratio at all, and, on top of which, the B ratios only appear at 3230, and then only above the zone.
So, despite its magnitude, it is a very thin index where the ratios are concerned, so, as we gallop towards the expiry, the moves may, probably will, become extreme.
Range: 3105 to 3155
Activity: Poor
Type: On balance only just bearish
Nb. Our comment on 12/12/19
The static zone is but a minor concern, as with so much Y ratio around it will move, it is really just a matter of when.
As we have mentioned the Dec expiry is the biggest of the big, and considering the volumes we are seeing this year, it could actually beat last year, making it one of the biggest ever.
However, one of the drawbacks of this gargantuan volume, is that it doesn’t move very quickly, hence the static zone.
Furthermore, it is just as well it keeps knocking on the R3 door, as if it got a shock, as things stand, the zone at 2995-3005 is a very long way away indeed, and nothing but Y ratio in-between, and for a triple, that is tantamount to no ratio, which means no support.
Again, and as we mentioned last time, that this market has been to 3155 before (3154.26 on 27th Nov), and despite it remaining at R3, you know the market knows what to expect should it go there again.
Additionally, you also know, that with R2 slipping 25-points, and DR 10-points, either side of it, that the ratios above the zone are in full retreat mode, so don’t expect it to hold for much longer.
Therefore, it might be worth knowing that 3175 is what we call a “step-up”, so that will soon become the next R3 level.
Past experience suggests to us, that in, or by, next weeks rollover and expiry, the zone will settle at 3095-3105, which is still a way below the current market, so please bear this in mind, especially as the rollover is now but 4 trading days away.
Well we sincerely hope you all had your fingers poised over the red button when the intraday high on the 27th November was 7446.00 (DR/R3 @ 7450), as you would have received a rather early Christmas present.
And actually, 7450 has returned to DR, not that it was ever far off.
Of more interest however, is the rise to R1 at 7250.
The reason being that there was a potential move in the zone to 7150-7250, which added greater weight to the Y2 Ratio level it was.
The fact the market blasted past it on Tuesday this week told us that the zone hadn’t moved, although, with two weeks still to run on this expiry, it is not an impossibility yet.
Especially towards the end, when things get a lot friskier.
Obviously 7100 is now a critical level, although we wager there were not many of you back on 18th, or even the 28th of last month, that even considered our zone, standing at 7000-7100, being a possibility, let alone a target.
Obviously, 7000, irrespective of it being a round number, is our first support level, assuming it does indeed get inside its zone.
The fact it is the bottom boundary of the zone as well as being R3, should provide more than enough futures buying, or dynamic delta, to provide a very strong level of support.
Range: 7100 to 7250
Activity: Very poor
Type: Neutral
Nb. Our comment on 12/06/19
The FTSE has definitely been stuck in our trading range since we last posted, namely 7100 to 7250.
Although the support does tend to kick in a bit more above 7100 than we would like, specifically around 7135, but it is after all a very serious level.
And probably why over the last 7 days 5 of them have tested this low.
If 7100 was to give way then 7000 would be the next stop.
On a more positive note, the zone is again very likely to move to 7150-7250, which also explains why the half way (7125) between the current support at 7100 may well be receiving a bit of unintentional assistance from 7150, the bottom of the new zone.
However, it is the other end of the trading range, 7250, that is of more interest at present.
Essentially, because the last 4 days have seen intraday highs of 7241.50, 7255.73, 7234.40 and 7250.67.
Again, but this time, R1 at 7250, may well be receiving a bit of unintentional assistance from 7250, the top of the new zone, when, or if, it does move.
It is a bit of a grey area, the point at which it becomes likely to move and when it actually does, made worse by this being the biggest of the big expiries, which means it doesn’t do anything quickly.
But, it better sort itself out soon, as next week it’s the rollover and expiry, and Decembers are very rarely dull affairs.
There was always that risk, and to be fair, Wednesday and Thursday last week were the deciding days.
On Wed it closed at 3108.46, having had the intraday low of 3091.41, which was hugely significant considering our range was 3105 to 3155.
Holding back in the R3 bandwidth showed remarkable resilience, which they needed again the very next day, with the intraday low of 3094.55 and the close of 3103.54.
It could have gone well for the bears at that point, but, as we said last week, it’s best not to underestimate the “Thanksgiving Effect”.
Looking forward, and it always gets a bit, well ok, a lot, silly in the thin market’s tomorrow and Friday, so unless you are of that temperament best to look towards next week now.
The ratios are building below the zone, which is bullish.
The fact the zone hasn’t moved is not.
The ratios above are slipping, also bullish, but considering where this market is in relation to them, this may just have the effect of taking away the support.
So, we maintain our stance, that this index is walking on very thin ice, but it is a situation it is not unfamiliar with at this particular point in time.
If previous years are anything to go by, sanity doesn’t return until late Monday, sometimes Tuesday or later, and so where this index is then in relation to the ratios will be the issue, not for the remainder of this week.
A bit like “shields are at 30% Captain, but holding, just”.
Range: 3130 to 3165
Activity: Moderate
Type: On balance bearish
Nb. Our comment on 12/06/19
The top end of our trading range before Thanksgiving was 3165, and we must apologies, as we forgot to mention what we call a “step-up” in the ratios at 3155.
This is where, within a bandwidth, in this case R3, the actual numerical ratio is closer to the next level up, as opposed to the one below.
Quite often, as the ratios move, these levels get revealed as a level in their own right.
This is what has happened here, as the step-up at 3155 on the 26th has become R3 in its own right.
We mention this as this index, intraday on the 27th, reached 3154.26, so it has already been here once, so knows what to expect, although back then it was a lot nearer to DR than it is today.
This just highlights what we said last time, the ratios below are building, and those above the zone slipping, both of which are bullish.
The static zone is not, nor is the fact it is over 100-points below the current level.
But, don’t forget that this is the mighty Dec expiry, so it is absolutely massive, and this year is the biggest we have seen for some time.
Although it hasn’t yet reached the proportions of last year, but easily swamps the preceding 4 years before that.
We mention this as it is very unusual, considering its size, to see any Y ratio at all, and, on top of which, the B ratios only appear at 3230, and then only above the zone.
So, despite its magnitude, it is a very thin index where the ratios are concerned, so, as we gallop towards the expiry, the moves may, probably will, become extreme.
