Nb. Our comment for 30/01/24
When we first mentioned 5000 it was back on the 9th January in the middle of the Jan expiry, when the market was 4763.54.
The astute would point out that we did actually mention 5000 prior to this, but that was to highlight that one of the main brokers had this as their forecast for the SPX to achieve in the whole of 2024.
We mention these two points just to firstly underline how far the market has actually come. Not to mention the alacrity of its ascent but, also the fact that 5000 was a brave forecast back then.
Secondly, this also underscores the importance of derivatives in allowing this move to happen. It wasn’t achieved in the Jan expiry as R1 was in the way but, in this expiry, R1 is safely tucked up there at 5005.
Y2 was also an issue, so it is also worth pointing out that the intraday highs on the 24th and 26th were 4903.68 and 4906.69 respectively. After the first test the index closed 35-points lower, but on the second only 16-points lower.
Of course, that made yesterday’s test strike 3, so no surprise it caved in.
With the market closing at 4927.93 yesterday, 5000 is no longer that outlandish.
So, looking ahead to the next 5 trading days, and the first thing to notice is that the market is now in the Y2 ratio bandwidth.
Overall, the Y ratio bandwidth has shrunk from 485 to 410-points, and the Y1 bandwidth from 310 to 260-points.
Therefore, the ratios have obviously strengthened below the zone and, although they haven’t moved above it, they are in fact weaker.
The zone itself hasn’t moved but, not only do we see 4850 as almost a done deal, but also as a stepping-stone to further moves up, and we are not discounting 5000 as the ultimate target for this expiry. Which would prove to be quite the anomaly indeed.
Just don’t forget how wide this Y ratio bandwidth is, as it will still be very susceptible to anything going “Boo”.
Range: 4805 to 5005
Activity: Poor
Type: On balance bearish
www.hedgeratioanalysis.com
Nb. Our comment from the 23/01/24
Well, we shouldn’t have been worried at all.
Although in our defence, with so much Y ratio around, hitting the 10-point wide zone on the expiry is like playing pétanque on an ice rink where the object ball is twenty metres away.
However, and as you can see in the right-hand column as you look at it of the ratio table, the settlement price was within 0.38 of a single point away from dead centre of the zone. Remarkable really.
On top of all that, interestingly once the expiry was done, the SPX managed to join the other two in making a new all-time high. Happy days.
Although, it really wasn’t that much of an ask, as R1 in the end in January didn’t start until 4880 even though it was proving sensitive to Y2 (4810) in the closing stages.
Anyway, all history now. Much more important is what February is looking like, which is the left-hand column in the ratio table as you look at it.
The most striking aspect, is that the ridiculously wide Y ratio bandwidth is actually wider in Feb.
The Y1 bandwidth is 310-points wide, and overall, it is 485-points wide. A staggering 10%.
What is even more striking is that Y2 doesn’t even start until 4905.
On top of which, R1 begins at 5005…which means that the “anomaly” we saw a couple of weeks ago at 5000 is now very much in the picture. Who would have thought that a few weeks ago…
The cautionary aspect, is that the corresponding Y2 is way down there at 4595 with R1 at 4520.
That is a huge downside.
At the moment it all looks rosy, if you’re a bull that is, but either have tight stops or some protection, as if anything goes “BOO” then there is absolutely nowt underpinning this current euphoria.
Range: 4805 to 4905
Activity: Poor
Type: Bullish
www.hedgeratioanalysis.com
