Nb. Our comment from the 11/23/21
Apologies for the lack of comment last week, but unfortunately preoccupied.
For the record, the November zone did end up at 4695-4705, so the settlement price was close enough, but the Y1 ratio bandwidth was so wide anywhere in that would have done.
This brings us rather neatly around to this rather weird December expiry, as we would expect the zone here to jump up to that level as well.
This in itself is not weird, well a 200-point hulk-like bound is certainly unusual, so verging on the weird but, the really odd aspects are more like the fact that this would means Y2 starts just above it, and R1 just 50-points above that.
And it’s not as if the respective bandwidths have narrowed, quite the reverse in fact, with the Y1 one being 310-points and overall, 460-points. And to have Y ratio in a triple at all is a new phenomenon, so to have so much is also weird.
However, the crowning eerie aspect is that here we are in the biggest of the big (which is borne out by the numbers) but the way the ratios are aligned we could be just in an intermediary, they are so similar.
All this abnormality certainly makes for a difficult read of this expiry, on top of which the last expiry saw this index go on to test rather emphatically R1 ratio so, when you also factor in this is a triple, then we have to say Y2 very probably won’t be enough while the jury remains out on how it will react to R1.
However, while there is considerable doubt over how sensitive this index will prove to be this expiry, there is one unmissable truth, which is that the downside risks remain.
If not actually increased, as the corresponding Y2 and R1 ratio levels below the zone are still a very long way away indeed.
Range: 4505 to 4705
Type: On balance bearish
Nb. Our comment for 12/01/21
For all its apparent weirdness, rather bizarrely, it is actually acting as we would expect.
By which we mean it is whizzing around in its Y ratio bandwidth, meaning volatility is up and whipsaws abound…brilliant.
Of course, the big difference is that the zone here has jumped up to 4695-4705, which it did the day after our last comment, so on the 24th Nov and which we did mention on twitter (@hedgeratio).
It is a symbolic move really, as the Y1 ratio bandwidth remains at 310-points and the overall Y ratio bandwidth is still an absolutely staggering 460-points.
In fact, this would be staggering in an intermediary expiry, so in a triple there really are no words for it.
Nevertheless, as long as it stays there it will remain the target and, even more so, towards the expiry.
Although we allude to this above, another fascinating aspect of this expiry is the fact that despite the zone moving none of the other ratios below it have budged an inch, that is apart from R2 which only begrudgingly moved today. Rather odd to say the least.
Another odd aspect is the fact that 4495-4505, the previous zone, didn’t really look like it wanted to relinquish its crown, or at least this was the case until today, when the ratio here has eventually started to fill in. Which should help the bulls nerves a bit at least.
Sadly, we are no closer to discerning the sensitivity of this expiry yet but, now at least, people may have a greater appreciation of what we mean when we say “Y2 and R1 ratio levels below the zone are still a very long way away indeed”.
Range: 4395 to 4695