Nb. Our comment from the 05/23/2022
As we would normally have the ratios for June from a few days ago in the right-hand column for comparison purposes, it will have to suffice when we say that there really hasn’t been a great deal of change in them over the last week, so you aren’t missing anything.
The first thing we must point out is that we are now in the June expiry, the second triple witching one of the year.
These are always considerably larger than the intermediary ones, so everything gets ratcheted up several notches.
Furthermore, these “big” expiries, tend to increase in size as the calendar year progresses. Therefore, June is generally the third biggest, with December being the biggest of them all.
This is important, as equity volumes as well as volatility all naturally increase exponentially over the course of these big expiries. So, don’t get side-tracked by people trying to curve-fit stories to the market moves.
Normally, it takes a while for markets to build up a head of steam to reflect the far larger numbers involved. But, in this instance, we are not sure that is going to be the case, as the moves recently have been quite spectacular in their own right.
Obviously, we would like to see the market get back into its zone. But, if it doesn’t, then we will have to see how sensitive it will be to the dynamic delta. R2 worked in May, and it could do again in June, but a lot will depend on when it interacts with it.
The sooner, the more likely it will have an impact. As the expiry goes on, not only is it less likely, but we would always anticipate it taking the far higher ratios to have the same effect as those that we have seen to be effective in the intermediaries.
And, as ever, a lot will depend on how much, or how little ratio there is present in the SPX, and we have all just witnessed what can happen when there is precious little.
Range: 7350 to 7450
Type: On balance only just bullish
Nb. Our comment on 05/30/22
Having fun yet?
Well, we certainly hope so but, and apologies for being the bringer of bad tidings, the FTSE is caught up in bit of a ratio nightmare for the next few weeks.
Last week was all about the zone, which it jumped straight back into on the Monday. Tuesday was all about staying in it. Whereas the Wednesday and Thursday were all about breaking out above it.
With the intraday low on Friday being 7542.78, or the zones upper boundary (7550), we saw resistance turn into support.
But and this is where it gets a bit problematic, as travelling up through the 100-points of the zone, where there is no ratio at all, is the easy bit.
Now the FTSE is in a 100-point bandwidth of R1 ratio. Not impossible to negotiate, especially for a triple. But, nevertheless, a level of ratio that will still produce a degree of futures selling onto the market that will have to be absorbed for it to progress.
The problematic part, is that from 7650 upwards there are some considerably weightier levels of ratio, where even a triple may have difficulty in coping with those quantities of dynamic delta.
In contrast, we saw the SPX’s zone dive down to 4000 but, the side effect of this, was to leave only the minimal Y ratio above it…all the way up to 4605.
And that is the issue in a nutshell. The S&P 500 has 15% of blue skies above it, whereas the FTSE hits the dynamic delta storm after about just 1%.
Of course, the ratios change daily, and significantly so, especially in regard to the lower levels but, even so, where we are concerned, if you are a bull, Stateside is where you need to be and not in London.
Range: 7550 to 7650
Type: On balance only just bearish