Well, you
can’t say you weren’t expecting a wild ride.
Of course,
the ratios should be calculated daily, but nevertheless because of their
current alignment this is not so important in the SPX as it’s all about the Y
ratio bandwidth.
For good
housekeeping, this index has already tested R3, back on the 26th Dec
when it was at 2345 and the intraday low was 2346.58, and very significantly,
on the very last trading day of 2018, the market closed at 2506.85, which in
these volatile markets is the closest you will get to hitting its zone.
Also,
significant, was in our last table R1 was at 2445, so is still a step-up, and
yesterday’s intraday low was 2443.96.
The ratios
are as in the table above, but the truly unprecedented magnitude of the Y ratio
bandwidth remains virtually unchanged, at the colossal 305-points.
Buckle-up.
Range: 2420
to 2495
Activity Poor
Type: On balance only just bullish
When we last commented on the NDX it had recovered all the way
back to its zone, which on the end of a 6.16% move was very impressive indeed.
However, this meant on the last trading day of 2018 it was
actually above its zone, and, in fact, the intraday low was 6273.94, which was
a bounce off the upper boundary of its zone.
When you appreciate this, and then read our comments regarding
the DJX, the significance of 23400 becomes even more meaningful.
Especially, as both here and the SPX, were above their zones, and
with so much Y ratio above them it could have been a very different story
indeed on Wednesday, which may in turn have given a far closer line of support
yesterday.
On which subject, the open here yesterday was 6274.76, which
should have a very familiar ring to it.
Otherwise, not a lot else has changed, apart from the addition of another vast swathe of strikes, which, as usual, hasn’t resulted in any activity, which in turns begs the question of why bother?
Range: 5650
to 6225
Activity: Poor
Type: On balance bearish
Hooray, we
have some Y ratio in the DJX at last.
The big
question is whether or not this means it is going to join the party?
At the
moment it is definitely the “party-pooper” as at the end of 2018 it was the
only index we cover not to be anywhere near its zone.
In fact, it
went one better, as on the first day of trading in 2019 the intraday high was
23413, which was then R2, and which evidently brought an abrupt halt to any
hint of a recovery, moreover this malaise eventually affected the other two.
If it does
get its act together, and joins the other two on the same page, then we should
see the zone here drop, and it could drop to 23400-23600.
This now
makes 23400 doubly more significant, as not only is it the last barrier before
this market gets into its Y ratios, it could also potentially be its zone
bottom boundary.
And, the good news is that there is still two more weeks to go.
There were
two massive milestones for the FTSE last week.
Firstly,
bouncing off R3 which was then at 6550, with the intraday low of 6536.53, which
was at the end of 150-point fall, eventually ending down just 100-points.
Secondly,
was the close on Friday, being above 6700, which is back into the Y ratios.
Since our
last ratio table there have been two important developments as well.
Firstly, the
drop in the ratios below the zone.
Secondly,
the zone itself being 150-points wide.
Obviously,
there is still considerable risk, but now we are into a new expiry, and if it
can get back above 6750, then it could become a very rapid ascent up through
the zero-ratio zone to 6900.
Range: 6700
to 6750 or 6750
to 6900
Activity: Average
Type: Neutral
For the DAX
it was the level of activity that caught our eye, especially as they were
closed for three days last week.
However, the
end result is the ratios below the unchanged zone weakening considerably.
But, the
surprising aspect, especially considering the one-sided nature of said
activity, is the fact there has been precious little movement above the zone.
Most
important, perhaps, is this index scraping a close just above R2.
This makes
10600 very significant, so watch any opening gaps, as 10550 is just as
significant, and therefore we suspect their next trading day may be a deciding
day for this index for the Jan expiry.
What we
found fascinating is exactly where the DAX is now is exactly where is was when
the ECB announced its QE and literally inflated this index all the way up to
13500.
So, next
week, for us at least, may well reveal whether or not this index has at last
returned to normal.
And we say
this in full knowledge, and to repeat yet again, that because they don’t know
what they did, as they don’t see it, how on earth can they regulate it let
alone be in charge when they are the cause?
The
fascinating aspect about these ratios is that the potential for something new
and unseen is always present.
When we last
commented on the Jan expiry in the SPX our two main themes were the continued
abundance of Y ratio and the potential for a bear squeeze, and the two are not
unconnected of course.
Well, the Y
ratio bandwidth now stands at 310-points, truly amazing, and so a 120-point
move is totally in keeping.
Very interestingly
the intraday low yesterday was 2346.58, just where our old friend R3 is
residing, the level that proved so effective on so many occasions in the Dec
expiry.
Of course,
Jan is but a couple of days old, but activity is already high, the number of strikes
is one of the largest ever, and in fact we would say it is the highest number
ever, so we rather doubt it is going to get quieter.
Range: 2345
to 2495
Activity Very good
Type: On balance only just bearish
Bizarrely it was the NDX that invented the addition of huge
swathes of strikes, not to mention abnormally large positions.
And lo and behold it hasn’t even arrived at the party let alone
make it to the kitchen.
And just to add to the weirdness here it is, after a colossal
6.16% leap, back in its zone.
It is not so much the fact that there are no R ratios at all
here, but rather the fact that we don’t even see Y2 until so far out, making
the Y1 ratio bandwidth a staggering 1475-points wide.
Range: 6225
to 6275
Activity: Average
Type: Neutral
Again, the
capacity for the ratios to surprise is in itself surprising, and for the DJX
this is in three main regards.
Firstly, the
total lack of any Y ratio, in stark contrast to the SPX.
Secondly, if
the SPX’s level of activity was “high” then here it is tremendous.
Finally, we
are back to just the 200-point zone, as this expiry also sees a very full range
of strikes, with a huge amount also added since our last look.
No doubt the
Dec expiry in the FTSE was a miss, but considering the pressure it was under
from the collapsing US it did rather well in the end we thought.
To put it
into perspective London lost 135.54-points last week, 1.98%, whereas the DJIA
gave up 1655-points, or 6.87%.
Nevertheless,
that will have hurt.
Looking
forward into Jan, and no surprise here but all eyes will be on the other side
of the pond.
But, if they
manage to sort themselves out, the FTSE has 400-points of Y ratio bandwidth to
go banana’s in this trip.
That is, on the assumption that the R ratios will be enough to hold the tide.
Range: 6650
to 6700 or 6700
to 6800
Activity: Moderate
Type: Neutral
For the DAX
most of what we said for London holds just as true, but here the last week’s
fall was 232-points, or just 2.14%.
When we last
looked at this expiry, and we didn’t actually publish, but suffice it to say
activity has been very high, even though if you were looking at the resultant
ratios you wouldn’t have thought so.
The big
changes are the appearance of some Y ratio below the zone and R1 above it.
And, this is
really the crux of the matter, as the Y ratio bandwidth here is a massive
800-points.
When you
also add in the fact that the ratio only goes as high as R1 above the zone,
then that is not a high hurdle really, more of a speed bump.
Again, the issue is with the Street, and if they sort themselves out, and the higher ratios here below the zone prove effective, then there is enormous upside potential here.
In a break
with our normal rollover charts at this point in the expiry we have reverted
back to the more usual three together.
Why? Because
we were intrigued to see just how expensive this expiry was going to be.
The answer.
Exceedingly.
Interestingly
the intraday low yesterday in the SPX was 2441.18 and 2445 is still DR, and
pretty much the only level not to change.
Not much
point in any comment, but what is noteworthy is the activity has been very
impressive even for an expiry, and the end result is the “biggest of the big”
expiries most certainly gets the record as the biggest on record.
And in a
further twist, the ratios, rather than falling off below the zone, as we would
expect in these circumstances, have actually come in, or strengthened,
bizarrely.
Also, it is
alone as the only one still to be inside a ratio bandwidth, the others being
below the hindmost.
Range:
Activity Moderate
Type: On balance only just bullish
We haven’t actually calculated the rollover in the NDX, but as
we said previously, and on many other occasions; “Boy, we bet they are glad they chose the biggest of the big expiries
to implement this “overhaul”, not.
Nevertheless, it still
hasn’t stopped them adding countless more unnecessary strikes”.
This view on the overhaul holds true across all three btw.
The NDX, just like the SPX above, has also seen its ratios below
the zone come in, or strengthen, which just adds to the pain really.
Range:
Activity: Moderate
Type: Neutral
For the DJX
the most noteworthy aspect is that the zone was just a smidgen away from being 23900-24100.
This doesn’t
change anything really, but suffice it to say the intraday high on Thursday was
24057, so it wasn’t for want of trying.
Nevertheless,
and as we said, 23600 was the critical level, so the warning signs were
definitely there.
Although,
here, the ratios have reacted as we would expect, but again this doesn’t change
anything.
Jack-hammer or pile-driver it doesn’t really matter as long as the point is, or has been, clear.
For the DJX Monday was the really big day and which just goes to prove that really the ratio calculations need to be done daily, especially at the tail end of an expiry.
Anyway, the previous Monday, 10thDec, 23900 was R3 and the DJX had just fallen 1000-points in two days to the intraday low of 23881, hitting R3 and rallying 542-points to actually finish the day in positive territory.
Today, 23900 is R2, and we just don’t know when it changed, but the new level and 23700 are R3 by the smallest possible margin, leaving DR as the far more solid level.
This makes 23600 a very critical level for the DJX, as no matter how much gloom and doom there is about the expiry the fact this market isn’t even in the Y ratios will have a major impact.
For any index players to want to sell that many futures that the amount of DR ratio dynamic delta will be buying is an extremely committed market indeed.
Range: 23600
to 23900
Activity: Moderate
Type: Bullish
Well the 200-point “normal” zone didn’t do anyone much good in Dec, so here we are again with the “new normal” 1000-point one in Jan.
To be honest, a trading range of just 1000-points will seem positively dull after the last two expiries, but that is a distinct possibility.
Mind you, it has to get back into it first, which is no given, but it will make for an entertaining end to the Dec expiry, and start to this.
In our last comment on the SPX we called it “Jack-hammer markets is the phrase you have been looking for.A sharp plunge down to support, for the SPX this has been R3, followed by the long climb back up before plunging again trying to drive that R3 further down”
Upon reflection the description we were really looking for was and still is “pile driver”.
Also, and this is necessary to repeat, these ratios are as a direct result of activity, so they will change, and so we should really calculate it daily, sorry.
The writing was on the walls yesterday when the SPX opened at 2590.75, or to us, R3.
Next line of support was DR at 2545, which was severely tested as the intraday low was 2530.54, but the close was just as significant.
The zone is now 150-points away, which is a gargantuan task, especially considering the emotion present, so you are probably looking at the expiry rather than the rollover now, assuming that they can even get out from under this pile driver.
Range: 2490
to 2545 or 2545
to 2590
Activity: Very poor
Type: On balance only just bullish
At this very same point when we were looking forward “to the mighty Dec expiry” the SPX had just closed at 2722.18 having traded that day up to 2754.60.
The reason we mention this is because at that point were just totally amazed that this “biggest of the big” still had so much minimal Y ratio present.
In fact, R1 didn’t appear until 2695 at that time.
R3 was at 2620, and R3 up until yesterday had caught the intraday lows on 5 occasions, causing many spectacular bounces.
Funnily enough, the expiry intraday high was 2800.18 which back on the 3rd Dec on the back of a good rally was more than close enough for us to call that a test of R1 at 2805, above their zone.
From the biggest to this expiry, and Jan is normally the smallest, although it is looking well populated there can be no disguising that there is now about 200-points of minimal Y ratio present.
Of course, the ratios will change, but if this index does get out from underneath this pile driver then the potential for a bear squeeze is enough to make one’s eyes water.
Did you listen? Probably not, as back onthe 12th November, at this very point (1st day of therollover), we mentioned that the FTSE in this expiry trades between the B ratiolevels.
And please check, but back then B1 was
at 6950 and B2 at 6650 with the zone at 7150-7250.
We also mentioned that the zone should
really be 6950-7050 (where it is now) and suffice it to say those first two
weeks of this expiry were top and tailed by 6950 and 7050. Again, please check
on the charts.
These last two weeks have been all about
where B2 was, being 6700, and is still what we would class as a “step-up”, even
though the official level is now 6550.
Basically, and despite Wall Street’s
worst efforts, 6700 caught the low from Thursday 6th Dec to Tuesday
11th Dec.
Incidentally, the expiry intraday high
is 7145.49 (3/12/18), which you should also recognise as the bottom boundary of
the old zone.
It has been a tumultuous expiry, and
just so very typical of the biggest of the big, the mighty Dec, so all in
accordance with every expectation and all so utterly predictable, and if one
was aware of where the ratio levels were, and even with all the 4th
Estate noise, this expiry should have held no surprises.
The only thing that remains is for it to
be in or around it’s zone by this Wednesday.
Range: 6550 / (6700) to 6850 or 6850
to 6950
Activity: Poor
Type: Bearish
At this point we generally strive to
point out that after the biggest of the big comes the smallest of the small
expires.
Basically, Jan is like falling off a
cliff where activity is concerned.
The proverbial reset button, where it
all starts again, building up to Dec 2019.
However, in a “normal” year, sensitivity
would return, and therefore we would expect the market to trade between the R
ratios.
And, of course, this Jan would be no
exception, that is, apart from the current alignment of what little ratio there
is out there.
This can be no better exemplified than
by the fact the zone is a staggering 200-points wide.
On top of this the Y Ratio bandwidth
stretches from 6700 (that level again hem hem) all the way up to 7150.
So, as far as predictions go, 200-points
of zone is more than enough for London to have a very exciting time in, but
when you add the Y Ratio either side it gets more like ecstatic.
Jack-hammer
markets is the phrase you have been looking for.
A sharp plunge down to support, for the SPX this has been R3, followed by the longclimb back up before plunging again trying to drive that R3 further down.
Wednesday 6th
December was fantastic as it plunged 78.53-points to the intraday low of
2621.53 hitting R3 at 2620 before recovering all the way back up to 2695.95.
Don’t forget
back on the 20th November the SPX hit the intraday low of 2631.52
and a couple of days later 2631.09 when R3 was at 2620, before recovering all
the way back up to 2800.
So,
yesterday’s intraday low of 2583.23 was a bit passed R3 at 2595, but it was
strike 3 if not 4, and it also had to wait for the DJX to join the party,
please see below.
Nevertheless,
we still saw a 55-point bounce.
The fact
this index closed just above R2 gives it a glimmer of hope, as does the fact
that the zone has eventually made its move, which will hopefully bring an end
to the constant undermining of the ratios here.
At the end
of the day the ratios have been doing their job, which is revealing where the
dynamic delta hedging will be, which recently was R3 worth of futures buying,
and although we can’t predict how the market will react the evidence recently
is overwhelming, highlighted by there being so much Y ratios still around.
Range: 2595
to 2635 or 2635
to 2695
Activity Poor
Type: On
balance only just bearish
Click here to buy now
Boy, we bet they are glad they chose the biggest of the big
expiries to implement this “overhaul”, not.
Nevertheless, it still hasn’t stopped them adding countless more
unnecessary strikes.
It wouldn’t be so bad if it actually achieved some activity,
but, again, it very obviously hasn’t.
The zone is back to where it should never have changed from,
which only goes to prove how desperately low the already classed as minimal, Y1
ratio actually is.
The big drop on Thursday 6th December of
164.39-points here in the NDX (if you hadn’t already guessed) took this index
to an intraday low of 6630.82, pretty much bang on Y2 at 6625.
Today, Y2 is at 6550 and yesterday’s intraday low was 6534.33
out of interest.
Huge moves in the markets and huge swathes of Y ratio, again,
exactly what we said there was a risk of back during the rollover, literally a
month ago, and perfectly exemplified by this index, where the Y1 ratio
bandwidth alone still stretches for an unbelievable 650-points.
Don’t forget the rollover and expiry begin next week, and we
normally warn of a build up in volatility in light of that, so if you think the
last couple of weeks have been good/bad then the potential for it to ratchet up
even more is certainly there. What fun.
Range: 6550
to 6775
Activity: Poor
Type: Neutral
Click here to buy now.
Don’t forget jack-hammer markets.
For the DJX
this meant a plunge of 785-points to the intraday low of 24242, which was
definitely a test of R1 24200, before recovering all the way back up to 24947.
No coincidence that 24900 is the bottom boundary of its zone we reckon.
Makes that a
Y ratio bandwidth test into the bargain.
Next day, again no coincidence we feel, that the intraday high of 25095 was a hit oftheir zone’s upper boundary, before it gave up 707-points.
Incidentally that day the intraday low was 24284.
Then,
yesterday, the intraday low was 23881 which was a test of the next ratio level,
which happens to be R3 at 23900.
Hopefully you have been listening as in the FTSE the very day of our last comment, 3rd Dec, we got the breakout from the 6950-7050 two-week trading range as expected.
The perfect irony was the intraday high last Monday was 7145.45 which was a test of the stubborn old zones bottom boundary, 7150.
This was exactly the push that this index needed as the zone has now moved to where it should have been all along, 6950-7050, surprise surprise.
Of course, this index was already well acquainted with 6950, but it was still humbling to see it in action on the Wednesday when this index was reacting to the first of Wall Street’s big falls.
In fact, that day saw the first test of B1 which was lurking at 6900 and is now at 6850.
In all honesty, if you knew where the ratio levels were in the FTSE then last week made perfect sense, as the intraday low on Thursday of 6673.57 does not do justice to how well B2 held the line at 6700.
The fact that the intraday low on Friday was 6704.05 is no coincidence.
Today it is still the same but please be aware that it is clinging on by its fingernails, being just above the threshold, not to mention another test would be strike 3, but 6650 is a very solid B2.
And grab those handrails as we still have two more weeks of this fantastic biggest of the big triple witches, which has lived up to its reputation admirably.
Range: (6650) / 6700 to 6850
Activity: Poor
Type: Bullish
If London was a perfect example of an index reacting with its ratio levels then the DAX wasn’t very far behind.
In our last comment we mentioned “this, now makes 11350 as a very significant level” because “if it can get over this then it is into the minimal Y ratios, which stretch all the way up to 11850, so buckle up”.
So, if you had been paying attention, then that Monday it gapped up at the open by a massive 278-points, but more importantly to 11534.
Again, if you had been paying attention, the intraday high and low of 11566 and 11457 respectively made that a zone bandwidth test (= breakout).
A zone that has remained static incidentally.
The next two days saw intraday lows of 11335 (confirming breakout) and 11177 which were, and still are, ratio levels of R2 at 11350 and R3 at 11150.
DR was at 11050 and Thursday’s open was 11053, which was essentially the high as well as the outlook was so bleak.
So, that really left B1 as the next line of defence, and as one can see today it is 10750, and on last Monday it was 10900, so at some stage it shifted, and as the intraday low on Thursday was 10762, we can only suspect that it was on the move, or had moved, by then.
Same as London though, as B1 is so courtesy of its fingernails, but here the more solid B1 is at 10650.
This does bring back memories though, as the DAX used to routinely trade between its B1 levels, although back then there was never such a huge gap from one to the other, which is really what is affecting the US at the moment and giving rise to such fantastic trading markets.
