Is a normal SPX possible in such low ratios?


Nb. Our comment from the 04/21/20


We finished off the April expiry by saying this market was “whacky” and the “zone could move at the drop of a hat”.

Both are still as valid in this, the May expiry.

In fact, we are seeing a serious move in the ratio, that could signal the zone moving down to 2695-2705.

Although this is very early in the expiry, there are still some interesting points to take away.

First, is that the zone in May has started at the same level as the April zone ended.

The significance of this, is that the market was below this level for the two weeks prior to its expiry, so, one could argue, that the zone being here helped the market to recover.

And, if anyone is still in any doubt about derivatives affecting the underlying, then look no further than WTI dropping to minus $40, enough said.

There is still a ridiculously wide Y ratio bandwidth, currently 815-points, so don’t expect sanity returning anytime soon.

In fact, if it does, and the ratios haven’t filled in considerably, then don’t believe it.

There is only a day separating the two columns in the table above, but the fact not even the lowest ratios have been able to move, and activity is “poor”, means this is sufficient to show that nobody is taking a view, hopefully, yet.

This market could go anywhere within the Y ratio bandwidth, quickly and significantly, but a falling zone is not good, especially if it drops below the current market.


Range:            2805  to  3005         

Activity:          Poor 

Type:              On balance bearish



Nb. Our comment for 04/24/20


Actually, this is the first sensible thing this index has done in a while, and we don’t just mean closing inside its zone.

When we say sensible, we probably mean normal, as under “normal” conditions, if an index missed its zone for their expiry, the quite common trait is for it then to gravitate towards it immediately thereafter.

Which is what has just happened, as, lets face it, with virtually no ratio around it to speak of, it could have easily pinged one or two hundred points in either direction.

And this remains the case, as under these current ratio conditions, we hardly think it is going to stay zone-bound, although, back in the day, we have seen this index stay inside its zone for an entire expiry.

On the 21st we mentioned the chance the zone may change to 2695-2705, which it obviously hasn’t, even when this index hit the intraday low of 2727.10.

It still could, very easily, but the fact it didn’t, would have helped to see this market recover over the last two days.

So, the risk is still there, albeit slightly mitigated, but as Y1 stretches all the way down to 2690, this has always been the case.

Overall, it is very disappointing to see so little change in the ratios, after all, they are so low, its not as if it would take very much.

However, perhaps every little helps, and so, for us, the most significant moves are in the R1 ratio levels, both above and below the zone, even if, this just goes towards narrowing a still gargantuan Y ratio bandwidth.


Range:            2795  to  2805     

Activity:          Poor      

Type:              On balance fractionally bearish

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April 24th, 2020 by