Frictionless SPX

Nb. Our comment from 04/09/20


Wacky markets, whatever way you look at them.

Needless to say, we have never seen anything quite like this, and “moderate” activity, and we were being generous, is probably the reason why.

It is very low, but totally understandable considering the circumstance.

However, this in no way distracts from the issues it causes, and the fact that this market is in a Y2 ratio bandwidth that stretches for 400-points, tells you all you should need to know.

For the record, the entire Y ratio bandwidth is an unprecedented 890-points.

Now it is downright weird the zone hasn’t moved, but it doesn’t really need to, as the market being in minimal Y ratio, it could easily, at the drop of a hat.

Some facts, R1 has dropped 300-points and R2 is down 150-points, but thereafter it remains quite steady.

But, as we said last time, fingers-crossed the market bounce from B1 when it was at 2195 (market low 2191.86) is going to be enough, as although it hasn’t moved this time, it did last time, and that was to 1995.

Whatever rhetoric, true or false, comes out of whatever politician, and whatever fundamental or technical analysis says, the ratios are a pure and direct reflection of real and actual money laid down on the table in the index option market, and that is, to us at least, far more representative of what people are really thinking.

The low activity suggests this is minimal conviction, and with the trading range being 2495 all the way up to 3245, so the recent 165-point move since we last published, is really, neither here or there, and therefore, entirely meaningless.

Expiry is at the end of the shortened next week, and we rather doubt it will be as quiet as this week has been, and, yes, we do know it moved 7% on Monday.  


Range:            2495  to  3245         

Activity:          Moderate      

Type:              Neutral


Nb. Our comment for 04/15/20


As we said on the 9th, the zone could “move at the drop of a hat”, and it has.

The market is still “whacky”, but, in all honesty, its sort of exactly what we would expect in such a huge Y ratio bandwidth.

On Monday the zone did actually drop to 2995-3005, but at the same time Y2 collapsed to 2595 from 2895, so this was never going to be the end of its move.

In the meantime, it seems the market and the zone have crossed, going in opposite directions, and what’s more, it looks rather likely the zones next move will be to 2745-2755.

At the end of the day, the Y1 ratio bandwidth, which includes the zone, stretches from 2595 all the way up to 3315, and the zone could end up anywhere within it really.

This is what we call a frictionless market, although, to be fair, it normally only ever applies to the NDX, so it is very rare, unprecedented actually, to see it here in the SPX.

Basically, this means with the absolute smallest possible momentum, the market goes a very long way, a bit like being on ice.

Normally, we only have to explain whether it is a stream, river, pond or lake that is frozen over, to give some inkling of the magnitude of movement possible with the minutest prod.

Here, its more like a frozen ocean.

Considering everyone is talking about the coming recession being worse than the Great Depression, the SPX being off just 15% is as whacky as it gets, especially when you consider we had been saying for a very long time it was 10% offside before all this anyway.


Range:            2595  to  3315         

Activity:          Poor 

Type:              Neutral

April 15th, 2020 by