Nb. Our comment on 07/31/23
Well, it wasn’t so much a “rude awakening” when the market encountered 7700, but more like a brick wall.
Apart from last Monday, every other day last week was a titanic battle with 7700.
Although, admittedly, the inroads in the last two days were greater than those on the Tuesday and Wednesday (intraday highs 7702.35 and 7702.74 respectively) with intraday highs of 7709.66 on the Thursday and 7716.82 on the Friday.
Despite the obvious failure to break through, you have to admire the commitment and tenacity in trying.
However, and far more importantly, is what may be in store for us this week.
As one can see there has been a lot of changes in the ratios, and deservedly so as activity has been at a very decent level, even for week one of the expiry.
First and foremost, 7700. It is now part of the R1 ratio bandwidth, which is still 7650 up to 7750. However, it still represents a step-up within that bandwidth, as at 7700 it is just below the threshold for remaining R2, whereas 7650 is just above the threshold of becoming Y2.
That said, 7700 is already on strike four, with the intraday tests to innumerable to count. In short, we are a bit surprised it remained so resilient on Friday.
Overall, obviously the ratios have fallen around where the market is currently but, outside that, they have actually risen, on both sides.
The upshot is, that the FTSE now has a bit more headroom but, R2 and R3, now lurk at 7750 and 7800 ready to ambush it.
Whereas, below 7700, it is now practically (ok 7650 notwithstanding) all Y ratio. So, brace yourself should this market get even a minor shock.
One saving grace may be that the zone may move to 7500-7600, which may limit the downside risk a bit.
Range: 7650 to (7700) 7750
Activity: Good
Type: Neutral
www.hedgeratioanalysis.com
Nb. Our comment from 07/24/23
Well, that battle with R3 at 7250 seems like it was ages ago, but it was in fact, just over a week ago, on the 10th and 11th of July.
So, since then we have seen the FTSE rally from R3 all the way up to the top boundary of its zone at 7650. A very impressive 400-points, or 5.52%. Brilliant.
And to top it all off, the timing couldn’t have been better, as on rollover Wednesday the market manged to get its fingertips above the bottom boundary at 7550. And if that wasn’t enough (which it would have been for us considering the journey it had to make) this also resulted in the final two days of the July expiry being spent inside its zone. A win: win, literally.
If you hadn’t guessed by now, obviously the zone didn’t move.
Also, we make no apology for our lack of bravery in not calling this last week as, exactly as stated, we need to be calculating the ratios daily to be able to do that with any degree of accuracy during generally tumultuous expiry weeks.
However, it does, very succinctly and graphically, reveal the importance of the zone.
This is now the problem however, as we now enter the August expiry.
As the zone here is still at 7350-7450, which is a long way from where the market had to get to for the expiry of July.
On top of which, having closed at 7663.73, means the FTSE will wake up today in the R2 ratio bandwidth. Which is not good news for the bulls.
We must also point out that in the ratio table it shows R3 starting at 7750 but, at 7700, it is only just below the threshold. So, please bear this in mind should the market get there, especially as that may be its first rude awakening as to how much dynamic delta it will now be facing in the August expiry.
Hope you managed to ride the rally up from R3 but, unless the ratios change, August looks like one for the bears.
Range: 7650 to (7700) 7750
Activity: Very good
Type: On balance only just bullish
www.hedgeratioanalysis.com
