Nb. Our comment from the 09/26/2022
October could well turn out to be another classic expiry, albeit one that still carries the memories of 1987, courtesy of it being regurgitated by the press every year.
First however we must look back at last week, before going over the coming one.
Wednesday the 21st was significant not just because it started weak and finished strong, but because the intraday high was 7258.87.
This was a test of its zone’s bottom boundary, and the fact it failed to hold onto it was the significant part.
Thursday was also significant, as the intraday low was 7149.59, right on Y2.
It did close back above it, giving the bulls a small crumb of comfort, but not by very much, in the end closing at 7159.52.
Who knows whether R1 at 7050 might have been more effective on Friday if it wasn’t for the shocks coming out of the mini-budget.
It is just R1, and don’t forget these ratios are exponential, but with gilts and sterling also getting hammered it really didn’t have much of a chance. Sometimes this is also healthy, as it does show that sometimes derivatives don’t have it all their own way.
The big, nay huge test, will hopefully come today. By this we mean the market testing R3 at 6950.
This is a significant jump in the ratio level it has been experiencing, and this is a level that will produce a considerable number of futures buying generated by the dynamic delta.
If it holds, it may well tempt the bulls back on board. If the market is really in the doldrums, it will just provide a buyer for those dumping futures. No crystal ball we are afraid, but it should be a fantastic battle. A battle we suspect that will decide what happens for the rest of this expiry.
Range: 6950 to 7250
Nb. Our comment on 10/03/22
As we said last week it certainly was a fantastic battle the market had with R3 at 6950, and it was on the Monday as well.
In fact, we thought it might just have been a case of job done when the market bounced right back int the 7000’s, and held there on the Tuesday.
Wednesday was the crunch day, and although the official open (always the previous days close) was 6984.59, in the real world it was nearer 6918.
What this meant was that is gapped down at the open to below R3 at 6950, if it was even still there in fact.
As you can see from the above table 6950 is now R2, having lost a third of its potency. The trouble is that we don’t know when that changed, and it could easily have been on Wednesday.
The fact that R3 is now 6850 and the last three intraday lows have been 6836.28, 6829.29 & 6840.07 does tend to suggest this as well.
Without calculating the ratios daily, we have no way of knowing, sorry.
So, apart from the ratios below the zone all looking weak, the other big news is the zone itself.
And it is not a small drop either, but a 200-point fall.
The upside, is perhaps that come the rollover and expiry, that this might be far more attainable but, the not so good news, is that there is still three weeks left in this expiry.
Obviously, falling ratios coupled with a falling zone are both bearish, as is the rising ratios above the zone. However, R3 does still seem to holding its own.
Plenty of upside now, the only question is will 6850 remain at R3 to give some downside protection?
Range: 6850 to 7050
Type: On balance just bullish