Nb. Our comment from the 05/28/20
It has most certainly been a very interesting battle the SPX has been having with R1 at 3005.
It’s not so much the fact this index has taken two days to get over it, and yesterday it wasn’t until 14:00 EST that it succumbed after an all-day prolonged assault, but rather the fact that this market is now confident enough to even take it on.
Ok, admittedly, it is only R1, so the dynamic delta futures selling is not really that much, but in the circumstances, even this small amount assumes a far greater significance.
Unlike the months preceding the correction, this time, the market is bizarrely doing nothing wrong.
That is unless it doesn’t take heed of this dynamic delta, and at the very least, retreat back to its zone.
Which, significantly, will very likely move to 2895-2905, so it’s not that big an ask.
But, if it continues to hammer away at the R ratios, ignoring the realities, then we are right back to where we were at the start of this year, namely, facing another rout. For further explanation please see any of our articles from Oct 2019 up to March 2020.
Again, we are totally nonplussed as to why the authorities in question seem to think this situation is acceptable, which to us, is even more bizarre than the markets themselves.
Please note R2 has slipped back to where it was, 3085, and hence our trading range, but please take note, where it came from, 3055, still represents a “step-up”.
Also, please note how little activity there is, and its nature, and we haven’t seen it all one-way for quite a while (no “on balance” description used).
Essentially this means, derivatives are not buying (in every sense) this move.
Range: 3005 to 3085
Activity: Extremely poor
Nb. Our comment for 06/03/20
To be fair we should have posted something before now, as it was becoming exceedingly obvious that the ratios above the zone were collapsing.
Nevertheless, our “step-up” level of 3055 certainly had a strong role to play in the last few days of May.
Basically, it capped the market.
On Monday, the 1st June, we noticed R1 had slipped to 3030 and R2 to 3105, which is where they are today.
This changed the step-up level to 3085, which is what curtailed the market yesterday we believe.
The ratios above the zone continue to slip, but it is not as pronounced as it was.
But, to see real confirmation, we need to see more upward movement in the ratios below the zone.
Having said that, the zone has moved up as expected, so two out of three bullish indicators isn’t bad.
What we really don’t like, is that people mistake this upward movement as economic bullishness, as, to us at least, it is just the totally normal outcome of a market that hasn’t got a properly established ratio profile.
A rise by default, rather than design, if you like.
Again, a bit of understanding and basic market understanding by the regulators would go a long way to establishing a rational appreciation of exactly why this market is back above 3000, as it certainly has absolutely nothing to do with economic expectations.
Range: 3030 to 3105
Type: On balance bearish