Nb. Our comment from the 02/28/22
Apologies for not publishing last week, especially as we appreciate it might have been rather useful to know the ratio levels. In particular, that the zone at the start of this expiry was at 7200. Coincidentally, 7200 was the low and close on Thursday.
However, before this, the pertinent ratio level was R1 at 7550.
On Monday 21st the intraday high was 7571.07 before the market gave up just under 100-points.
Then on Wednesday 23rd it revisited it with the intraday high of 7549.98, before giving up 50-points.
The fact that the zone has moved up to its current position was always on the cards but, as we have mentioned previously, because triple witching expiries are so much bigger than the intermediaries then it’s like turning an oil tanker, very slow.
The problem the FTSE faces now, is that by leaving the move so late, it has left a vast swathe of the minimal Y ratio around, but especially below the zone.
And if this wasn’t bad enough, as triple expiries progress, they tend to get far less sensitive than intermediaries, so rather than reacting to R1 it would be entirely in keeping if March went on to test R3 or even higher levels.
And March still has three weeks to go, so we could easily see a range of 7050 all the way up to 7650, although it hasn’t done badly already, going from 7550 down to 7200 and back up again.
Probably be too big an ask to see it see this week out in its zone, but you never know.
Range: 7450 to 7550
Activity: Poor
Type: Bearish
Nb. Our comment on 03/07/22
Well, we did say we could easily see a test of 7050 as, not only would that be in keeping with a triple, but under the present circumstances probably even more so.
The fact that this meant a tumble of just over 400-points, or 5.36%, meant that there was a huge amount of momentum inherent in the market, and obviously too much for the ratio at 7050 to cope with.
Although, having just said that, after the initial fall on Friday for most of the rest of the trading day the action did revolve around 7050, only capitulating in the final half hour.
And that is how the dynamic delta works, as the ratios just tell you where it is and how much of it to expect. What the ratios can’t tell you is the appetite of the market. So, at 7050 we know there will be a “DR” number of futures buying courtesy of the dynamic delta, what we don’t know is if this will be met by as many willing sellers.
However, generally we do get a feel for the market’s sensitivity, or an indication of how it will react to the levels of ratio, but under the current climate we can safely say that these are not normal times.
That said, the next ratio level coming up in the FTSE is B1 at 6950.
And as our levels are exponential, then this is a very significant number of futures buying generated by the dynamic delta. What we don’t know is whether this will be more than the market is willing to sell.
Under normal conditions we would have no hesitation in saying that this would be more than sufficient to turn the market but, with a war raging, who knows.
Finally, in the midst of all this excitement, it would be easy to miss the fact that the zone has slipped down to 7350-7450. This might not be so important in the next few days but, if any hint of normality returns, then it could become significant when we get closer to the rollover and expiry.
Range: 6950 to 7050
Activity: Poor
Type: Bearish
