Derivatives blink first in the SPX

Volatility to worsen as the R1 safety net drops in the SPX


Nb. Our comment from the 07/05/22


Well, it took a while with the market interacting with R1 at 3745 before “the money normally rises to the top” came about.

The fact that the first two days of this expiry, despite intraday lows deep inside the R1 bandwidth, always closed above 3745 gave a glimmer of hope.

The Thursday 23rd therefore could have gone either way, it being strike three at 3745, but a strong opening followed by the intraday low of 3743.52 just set the scene for the Friday.

We would like to have seen this market get back up to its zone, like the FTSE100, before capitulating, but we can’t have everything we suppose.

And last week, the last two days returned us back to literally where we were on the first two days of this expiry. The intraday lows being 3738.67 and 3752.10, yet again testing R1 at 3745.

It might not be Thursday 23rd again, but it might as well be, as it is looking increasingly likely that today we will see a further test of R1. This is some resolute defence going on here, as once again this is strike three.

Naturally R1 has weakened after such a prolonged assault, and the picture is further complicated by the second US holiday falling within this expiry, and so we would not expect 3745 to remain R1 by tomorrow, and probably not even by the end of today.

For a more robust R1, and at a commensurate level to the first week, you have to be looking at 3720, or at a pinch 3730.

In essence, should the market go there yet again, it goes in full knowledge of what to expect, and is therefore not frightened by that, or it pulls up short, pretty much for the same reason.

Don’t forget, last week having hit R1 this market rallied 47 and the 73-points respectively, so the bulls are far from dead, but at the same time, hardly galvanised either. Apologies it’s not more definite, but today or tomorrow should go a long way to sorting out who wants to be in charge for the remainder of this expiry we suspect.


Range:            3745  to  3995           

Activity:          Poor

Type:              Neutral



Nb. Our comment for 07/12/22


Well, that was some test, or should we say examination, of R1 at 3745 last Tuesday 5th. The market basically spent the entire morning flatlining on R1, before eventually the bulls gained control. In fact, it was so impressive, that even after a multitude of tests, the intraday low was still only 3742.06.

The trouble is that the bulls, although happy to capitalise on the support generated by the R1 dynamic delta, they still can’t quite muster enough enthusiasm to really push ahead, and get this market back up to its zone.

And that is the problem, but with an added twist for the derivative players, as this expiry ends this week, so they are literally running out of time.

Up until today, the pertinent ratios hadn’t changed from when we last published.

So, R1 has remained at 3745, with Y2 at 3895.

Of course, as you can readily see in the above table, this has changed significantly today.

Basically, derivatives have blinked first.

In fact, so much so, that there are four candidates to being the potential new zone, each having lost almost 50% of their ratio value.

Therefore, as it stands, the Y1 ratio bandwidth below the zone now stretches from 3795 all the way up to 3995.

And, the “resolute” R1 has dropped to 3695.

Essentially, no one is going to get badly hurt, even if this index expires in the Y2 ratio bandwidth but, with so little ratio around it could get extremely volatile.

And not only is this terribly difficult to control, but with a falling R1, the safety net has also been lowered.

We think this particular expiry now will not be so much about where it finishes, but rather keeping it calm and rational.


Range:            3695  to  3995           

Activity:          Moderate

Type:              On balance bullish

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July 12th, 2022 by