Nb. Our comment from the 06/01/22
Well, it certainly was dramatic and it certainly was a seismic move in the zone.
Had one realised what was going on, then last week was like reading a book.
The same day as our last note the market hit the intraday low of 3875.13, a deep incursion into R2.
This was evidently enough of a stimulus to the bulls, happy to piggyback on the futures buying dynamic delta unleashed, to force the zone into the seismic move we had mentioned, as when we crunched the numbers on Wednesday it had indeed moved to 3995-4005.
Therefore, Wednesday was all about the new zone but, the Thursday and Friday, were definitely all about the sudden freedom the market found itself courtesy of that now vast expanse of Y1 above said new zone.
Of course, we have seen the zone in the SPX make big moves before, but we can’t actually recall one of this magnitude before. Nor can we ever think of such a move being so necessary, as it really has “reset” this market for this expiry.
So, from starting off in bear territory below the zone, and testing R2 ratio, we now have the situation where it is happily back in bullish territory in acres of Y ratio.
Therefore, you would be forgiven for thinking that the hard work had now been done but, to us at least, now everything has been reset, the true nature of the market can begin to emerge.
It may well be, that the bulls have now gained sufficient superiority that, in hindsight, the hard work has indeed been done. However, now the market is above its zone the gravitational pull from it is now downwards, not upwards. Plus, there is a chance, that the zone could move back from whence it came.
So, still plenty of risks out there but, the next few days and how they evolve, should go a long way towards either cementing this sea change, or revealing it to be just what we said, a reset.
Nevertheless, playing the cards we now have in front of us, support is the zone and the R ratios immediately below that. Whereas resistance, in the form of R ratios, doesn’t appear until 4605. And, if it remains as aggressive on the upside, then R2 doesn’t appear until 4705. Which is a ridiculous amount of upside for a bull market, let alone the bear one we are meant to be in on a conventional definition, not ours (unless the zone does move back up of course), but even so, it is a lot.
Range: 4005 to 4605
Activity: Poor
Type: Neutral
Nb. Our comment for 06/07/22
Well, it promised so much but, after that seismic move down in the zone, the SPX has just stalled.
Although, we did suspect that it was pure and simple a reset, and so we also think that the true nature of this market is yet to emerge.
It was more to do with the sudden shock of hitting R2 on the very first day, the resultant subsequent rebound forcing the radical zone move, rather than a more deliberate market motivation that caused the reset we think.
Once the zone had moved, and the market was above it, had there been any further aspirational bulls out there, they really could have had the mother of all parties.
Still could of course, as R1 is still a massive distance away at 4505, but there just doesn’t seem to be the belief.
Oddly however, we are also not seeing the zone want to move away from where it is. Which is a bit bizarre, because this index has stalled around the low 4100’s, which is in the virtually non-existent Y1 ratio gigantic bandwidth, and yet it hasn’t forced the zone to settle around it.
There may well be technical, or even economical reasons for this torpor but, from a derivative perspective, there is no reason at all as the market should be fizzing about with 2 or 3% moves.
On a positive note, the level of activity has been ok throughout, so we feel certain this particular doldrum won’t last much longer.
At the very least, next week is the rollover and expiry, so this alone should start to agitate this market and get some volatility out there.
So, same as last week, the R ratios below the zone should provide some support, but it has been there already this trip so will be no stranger to what’s there.
On the other side of the coin, there is still an absolute vast swathe of Y ratio above it, so all it would need it a gentle shove in that direction, but what in the current climate could provide said shove we have no idea.
Range: 4005 to 4505
Activity: Moderate
Type: Neutral
