December 16th, 2024 by Richard

The FTSE remains zone-bound

What is the Hedge Ratio? The hedge ratio is a powerful tool for predicting market behaviour, pinpointing the exact levels on an index where dynamic delta hedging will likely trigger significant buying or selling activity. It allows traders and investors to anticipate shifts in market momentum and identify where futures trading will intensify, providing a strategic edge.

The Predictive Power of Dynamic Hedging: Dynamic hedging is the process of continuously adjusting a hedge to stay neutral as market conditions change. When managing a non-linear position, such as options, with linear instruments like futures, the sensitivity to price changes (delta) shifts as the underlying asset’s value fluctuates. To maintain a balanced, zero-delta position, the hedge must be adjusted frequently. This constant recalibration is known as dynamic hedging, and it’s where the hedge ratio steps in, offering a roadmap for where these adjustments will occur across the market.

 

Nb. Our comment on 16/12/24

Seems like it wasn’t such a big ask keeping the FTSE zone-bound last week, making three-weeks in a row it has been collared by the boundaries 8250 and 8350.

Monday was the only day it showed some attitude, getting as high as 8372.05 and closing just a smidgen above the upper boundary.

Thereafter however, it was business as usual, with the intraday high on Tuesday of 8352.13 and the intraday low on Wednesday of 8248.42.

Thursday and Friday it hardly moved away from dead centre, being 8300.

Anyway, before we get onto this week, we have added above a little explainer above about what it is that we analyse, just to remind everyone. Of course, please feel free to share.

What has prompted us to do this now, was the news during the week about the UK listed £27bn Ashtead Group shifting their listing to the US.

Certainly, don’t blame them, in fact we probably understand better than most why. As we have said throughout this expiry, mainly due to the hedge ratio, the FTSE has been stuck in its zone, while the US has been reaching new highs. While this may be great for derivatives, it does not help your average FD, who needs their share price to reflect the true value of their company, along with all the associated finance costs.

This really is a major problem for the UK, as if these big companies are registered here, then this is where they pay tax. Hopefully, at some point, someone will actually listen to us, but we are not going to be holding our breath.

Now, far more importantly, next week.

We have eventually reached the rollover and settlement week of the mighty December expiry, the biggest of the big.

Being quite honest, after the first week of this expiry, way back on the 18th November, when the market managed to rally from 8050 (and November’s expiries zone) all the way up the December expiries zone, 8250-8350, it has been placidly stuck there much to the delight of derivatives.

So, whatever happens during this week, we very much feel as if its job done.

However, being greedy, perhaps holding in said zone until rollover Wednesday, would provide the icing on the cake. However, let’s face it, they probably have indigestion now anyway it has been such a big and rich cake.

If it does break free, then 8450 is an even tougher ratio level now, but this will depend entirely on when it is challenged.

For example, if they do manage to hold it in the zone until Wednesday then, quite frankly, nobody is going to care about Thursday or Friday.

We still have our “Santa rally” to come, although we call it the year end “bonus rally”, so plenty of time left for that, and from next week we are into the January 2025 expiry anyway.

 

Range:            8250  to  8350      

Activity:          Very poor

Type:              Bullish

www.hedgeratioanalysis.com

 

 

Nb. Our comment from 09/12/24

If week two was all about the zones’ bottom boundary, 8250, for the FTSE, then last week, week three, was all about the upper boundary 8350.

In fact, only Monday ignored it. Tuesday was the most aggressive, with the index peaking at 8388.37 before finishing at 8359.41, significantly above said upper boundary.

However, thereafter the R2 ratio it found itself in was obviously too much for it and, despite trying every day to get and stay above 8350, the FTSE closed happily within its zone.

It is worth noting that every day last week the DAX notched up new all-time highs and even the CAC added about 2.7%, making the FTSE distinct lack of forward momentum stand out in stark contrast. Of course, even all three main US indices also notched up new all-time highs.

Evidently, they didn’t have to contend with all those futures selling forced out by the R2 level of dynamic delta.

Looking ahead to next week and, although it is week four, the rollover and settlement is the week after, the market is now very familiar with both of the zone boundaries by now.

It would be nice if it could manage one more week being zone-bound, or at least the bulk of it, but this will be a big ask we suspect.

The only change in the ratios, is B1 above the zone slips back to 8600. However, the ratios are actually weaker both above and below the zone, despite this being the only move.

Ordinarily, we would say the FTSE would break out of its zone at the end of the week in anticipation of going a bit wild in the final week.

However, we know the SPX is knocking on their R2 ratio door, so if they and perhaps the other record setting indices see some weakness, this might upset the FTSE’s plans.

 

Range:            8250  to  8350      

Activity:          Very poor

Type:              On balance just not bearish

www.hedgeratioanalysis.com

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November 25th, 2024 by Richard

As anticipated the bulls take control in the FTSE Dec expiry

Nb. Our comment on 25/11/24

We really hope you took note of our comment last week and our trading range, as it was all about 8150.

Sadly, we never got a test of R3 at 7950, as that would most certainly have been the icing on the cake.

Nevertheless, I think we can safely say that the FTSE really didn’t cope well with the futures buying generated by the R2 ratio dynamic delta.

The only problem was the upper boundary of that bandwidth, 8150, which was tested with intraday highs on Tuesday (8145.86) and Thursday (8152.86).

That made any test of Friday strike three but, it wasn’t required anyway, as the real time market open was about 8207, way above that sticking point.

To cap it all off, by the end of Friday, the FTSE had successfully closed inside its zone.

Essentially a rise of 200-points (2.5%) in a week and so, just as we said, “there is limited downside but plenty of upside, so one for the bulls we think”.

Looking at today’s ratio table, and although there haven’t been many eye-catching changes, there are still some developments to be aware of.

The most important aspect is the fact that the market is now in its zone, which makes our trading range 8250 to 8350.

Obviously, 8250 is critical, and the ratios below here have weakened, but not by enough to change their classification. However, 8200 is making suspicious moves, that might later be a move towards being the next zone if these continue.

However, and especially with the Street’s strength, we suspect the real battleground will be at 8350 this week.

Here, despite being R2, which was a move up from R1 from the week before, it is still just above the threshold. Will it hold, probably not, it is the December expiry after all, but it may take a few goes. 8450 on the other hand, really is very robust ratio speaking, so we doubt it will manage to breach this.

 

Range:            8250  to  8350      

Activity:          Very poor

Type:              Neutral

www.hedgeratioanalysis.com

 

Nb. Our comment from 18/11/24

It was a while back but, if you remember, that at the very start of the November expiry on the 21st October the market and R1 were at 8350.

That was the expiry high for the FTSE and, although it did try on several further occasions, it never did manage to really break free of its zone.

This was especially true of the final week, by far the most important, being the rollover and actual settlement, where it never really threatened to leave it.

Although, worth noting, that it was the bottom boundary, 8000, that came to the rescue, specifically on Tuesday and Wednesday with the intraday lows of 8018.55 and 7995.87.

Despite this really being an effect of the final week of the November expiry, as you can see, it will make for an interesting start to the December expiry that becomes the front month today.

However, before we get onto how the ratios are aligned for this expiry, we first must remind you that this expiry is a triple witching one.

Not only that but, as its December, it is also the biggest of the big.

Also, it’s a five-week trip.

Now, the first thing to note, is that the zone in this expiry is at 8250 to 8350, which is a considerable way north of where it is at the moment.

The second thing to note, is that R3 starts at 7950. Of course, as a triple, it naturally needs the higher levels of ratio to make an impact but, R3 is definitely in that category.

In the meantime, the FTSE will start this expiry in the R2 ratio bandwidth, which stretches from aforementioned 7950 up to 8150.

So, this will certainly desensitise the market to the dynamic delta in this the first week, which we often refer to as the extra superfluous one.

Nevertheless, essentially there is limited downside but plenty of upside, so one for the bulls we think.

 

Range:            7950  to  8150      

Activity:          Poor

Type:              On balance bearish

www.hedgeratioanalysis.com

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July 29th, 2024 by Richard

After the FTSE's zones bottom boundary saves the bulls last week, the ratio shoe is now on the other foot.

Nb. Our comment on 29/07/24

Just to keep us on our toes, the zone hasn’t moved to 7950-8050 as we thought it might last week, but has fallen to 8100-8200 instead.

This didn’t affect what happened at the start of last week, but very probably had an impact on what happened on Friday.

At the start of the week, it was indeed all about the bottom boundary of the zone at that time, 8150.

Monday saw the intraday low of 8155.72, whereas on the Tuesday it was 8151.46. That Tuesday test was truly spectacular, as it spiked down at 09:00, touched 8150 and promptly rebounded 80-points. Amazing really. However, as if that wasn’t enough, it retrenched all the way back down to 8150, touched it again at 15:00 before rallying into the close.

On the Wednesday, which was also strike three, we thought the dam would burst, but it recovered to close just above it and back in its zone.

Then on Thursday, the bears attacked again but, yet again, it recovered to close back inside its zone. This really set the field for Friday’s gains, helped no doubt by the upper boundary being no longer at 8250.

Looking at today’s ratio table, we rather doubt the fun is going to stop this week either.

Primarily because R1 now awaits this index at 8300. The question that we need to answer is whether or not the intraday high of 8290.33, coming at the end of a 100-point jump, was a test or not.

We have to go with yes it was, but this week should be more definitive, we are sure.

If the market can cope with the dynamic delta released by this level of ratio, and 8300 has only just crept above the threshold this week so this is entirely possible, then it might just fall to 8350 to provide the real test.

If the bulls can pass that test, then there is a huge jump in the ratios at 8450 and, don’t forget these ratio levels are exponential, that waits in ambush. Our preferred outcome is for it to wallow in the Y ratios of course.

  

Range:            8200  to  8300 / 8350      

Activity:          Average

Type:              On balance bullish

www.hedgeratioanalysis.com

 

 

Nb. Our comment from 22/07/24

The settlement price for the FTSE July expiry was 8174.94, which was in a very weird trading day that was seriously affected by the worldwide IT outage.

Although, with the caveat of whether to trust the data under such circumstances, it seems the FTSE had a whopping trading range of almost 70-points during the expiry auction period, which was fun to watch but perhaps not to be part of.

In the end the July zone didn’t move to match August’s, but anywhere below 8200 was absolutely fine, being in the Y1 ratio bandwidth.

Furthermore, it was probably for the best that the July expiry ended last week, as 7800 was making a play to be the next zone.

So, in a rather bizarre twist, here we are in the August expiry, and the zone has held steady at 8200, meaning this trip starts off in its zone.

However, if you compare the ratios from a week earlier to today’s, you will clearly see the ratios above the zone have strengthened.

The most obvious is the appearance of R1 at 8350, but DR has also moved in a very considerable way.

Below the zone, it’s the exact opposite, with Y2 disappearing as has DR.

More to the point, we are seeing 7950-8050 making a move towards being the next zone.

All three aspects are bearish and, as it is all now Y1 from 8150 down to 7950, there is precious little support.

This means the current bottom boundary of the zone, 8150, will be crucial.

Our only concern, is what with all the problems on Friday, this may not be the correct reflection we are seeing, and it may take a day or so to sort out what might have been affected by last week’s outage.

 

Range:            7950  to  8150     or      8150  to  8250      

Activity:          Good

Type:              Bullish

www.hedgeratioanalysis.com

 

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June 23rd, 2024 by Richard

After fun and games in the June expiry, the FTSE starts July in an interesting position.

Nb. Our comment on 24/06/24

Rather bizarrely, the zone in June never did actually move, but what we said about 8150 and 8250 being the critical levels for last week was spot on.

8150 was the centre of attention at the start of the week, whereas it was the turn of 8250 at the end of the week.

However, the most impressive moment came at the moment of the actual expiry, when the FTSE dropped 50-points in a heartbeat to achieve the settlement price of 8200.74.

The zone may not have moved physically but, there is absolutely no doubt, that for all intents and purposes it was in fact at 8200.

Now, if you look at the ratio table you will see we have included what the July ratios looked like back on the 17th, when June was still the front month.

The reason for this, is because it is worth knowing that the zone back then in July went from 8000 all the way up to 8150.

Not only that, but the Y ratio bandwidth stretched from 7750 all the way up to 8250.

The point of being aware of this, is that the zone in July has already moved down.

On top of which, the Y ratio bandwidth still goes from 7800 all the way up to 8250, so hardly any change at all.

Another point to mention, is that although the ratio at 8250 is R1, it is only just below the threshold of being R2. Which starts at 8300 anyway.

Considering the market closed on Friday at 8237.72 then there are no prizes for guessing which way is the path of least resistance.

And, it’s a very long path as well.

From a ratio viewpoint, then this should be one for the bears, at least at the start.

The only fly in this ointment, is whether or not they are still desperately trying to prove this index isn’t controlled by derivatives and is therefore as good to list in as any other market. Good luck with that is all we can say.

 

Range:            8050  to  8250      

Activity:          Good

Type:              On balance only just bearish

www.hedgeratioanalysis.com

 

Nb. Our comment from 17/06/24 (NB. The June expiry)

 

It really does seem an age ago that the FTSE hit the intraday high of 8451.64 thereby experiencing the force of all that dynamic delta generated by R3 level ratio.

Since then, it has been a weekly progression of this index hitting the stepping stones of different ratio levels until it has reached where it is today.

So, and being true to form and as mentioned last week, the first three days of last week were all about R1 at 8250.

The respective intraday highs were 8245.37, 8261.74 and 8243.22 but, and significantly, none of the closes on those days were above 8250. The closest was on the Tuesday when the market closed at 8147.81.

However, the best test came on the Wednesday, with the market at 8200 it spiked up to the intraday high, near enough 44-points, before finishing at 8225 on a 5-minute bar. More impressively, it never got close to that high again for the rest of the day.

Anyway, more importantly, is what about the week ahead, especially as it’s the rollover and expiry.

Looking at the zone first and 8200 hasn’t made any further progress this week, which doesn’t rule it out of course, but it does mean it has its work cut out for it as it has it all to do in just a few days now. 7900 has also now pretty much ruled itself out of the picture, courtesy of it now being R1.

The intriguing aspect is the activity, and we suspect it is that low due to the simple reason that those opening positions have been matched equally by those closing theirs. What this means in reality, is that there is no agenda in play. At the moment at least, as rollovers tend to change this situation dramatically.

Also, don’t forget, this index is now down 200-points (2.4%) so far on this expiry. OK, it was ridiculously high to begin with, taking on R3, and it tried to get back above 8250 and failed, so both facts combined say to us that the trend is down.

Probably, the best-case scenario is that the zone moves to 8200, which would make 8150 and 8250 the critical levels for this week.

 

Range:            8050  to  8250      

Activity:          Only just registered

Type:              Bullish

www.hedgeratioanalysis.com

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April 15th, 2024 by Richard

The Ratio levels dominated the FTSE100 last week

Nb. Our comment on 15/04/24

Again, the last five trading days were dominated by our ratio levels.

On Monday the intraday high was 7953.16, whereas on Tuesday it was 7962.78. The market peaked twice 12-points above 7950, once in the am then again late afternoon but, aside from those twin spikes, the bulk of the days price action was on or around 7950.

On the Wednesday, which was also strike three incidentally, the market pushed through 7950 and went on to test R2 at 8000 with the intraday high of 7999.84.

Having dropped back nigh on 40-points after that test, the bulls were again left scratching their heads as to why everyone wasn’t on their side. This also resulted in a lame Thursday while they appraised the situation.

Evidently, they were desperate to join the other markets in establishing a new all-time high so, on the Friday, they dispensed with protocol and the market opened at about 7970, and then immediately went straight back up to 8000 in the first few minutes. We know the official open was 7923.80, but we all know that’s rubbish. Incidentally, Friday’s test of 8000 was also strike three, the first being back on the 4th April.

Sadly, and as we mentioned previously, the all-time high of 8047.06 was being protected by R3 at 8050. Now, that is a lot of dynamic delta futures selling, and as the vega was spiking with the market being up 121.18-points, it’s no surprise to us that the intraday high was 8044.98.

Significant as well, that the close was just below 8000.

Now there have been quite a few changes in the ratios which you should be aware of.

Most importantly, is the fact that none of these changes are above the zone. So, you should be very familiar by now with these pertinent levels.

Below the zone we now see Y2 appearing, with a few of the R ratios slipping, which is bearish.

However, the overriding influence this week should be the rollover and expiry, so a retreat back to 7800 is what we would expect anyway, despite the geopolitical situation. Ironically, the May expiry is looking good should the want to have another pop at the new high, but still very early days there of course.

 

Range:            7950  to  8000      

Activity:          Moderate

Type:              On balance only just bullish

www.hedgeratioanalysis.com

 

Nb. Our comment from 08/04/24

 

London was closed last Monday, so the first day of trading was Tuesday 2nd and true to form it went up to the 8000 level which we mentioned (please see below).

Significantly, it closed just below the other level we mentioned, 7950.

Wednesday was bit of a holding pattern, where the bulls tried to work out why everyone wasn’t on their side.

This meant Thursday was a rerun of Tuesday, significantly topping out at 7990.41, just below the 8000 level, as everyone now knew there was a big futures seller there and didn’t want to be the one getting filled.

Friday was essentially the culmination of the bulls’ failure to deal with the dynamic delta at 8000.

As you can see in today’s ratio table there have been quite a few changes, but it is generally the same levels which are pertinent.

8000 is now out on its own at R2 although, in the last two-weeks, it has gone from being just below the R3 threshold to now, being only just above the R2 threshold.

Should still pack a punch though, or at least for the first couple of days it will.

7950 remains the demarcation line between the Y and R ratios, so still a critical level.

We still have two-weeks to go in this expiry but, by the end of this week, thoughts should be starting to focus on the zone.

In the meantime, now the FTSE is in the Y ratio bandwidth expect volatility and whipsaw, just as we have been seeing in the SPX recently.

Don’t forget, at the start of this expiry the zone was at 7650-7750, and it’s not beyond the realms of possibility that it could revert back.

 

Range:            7850  to  7950      

Activity:          Poor

Type:              On balance not bullish

www.hedgeratioanalysis.com

 

The faction account of the Big Bang, The Great Storm and the market crash of 1987, available in eBook and paperback here, a must read if you don’t believe in history repeating itself.

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March 20th, 2024 by Richard

The FTSE April expiry is here and it could be a fun ride.

Nb. Our comment on 18/03/24

Before we get on to the April expiry we must comment on the last week of the mighty March one.

Obviously, it didn’t finish in its zone on rollover Wednesday but, we suspect they were already counting up their gains from the previous three weeks, so were not that bothered.

The writing was on the wall on Monday, with the market closing at 7669.23, just above the zone’s upper boundary at 7650.

Then on Tuesday, from 11am onwards the FTSE traded between 7740 and 7760, bouncing between those two lines like a ping pong ball. Which back then was testing R2 at 7750. Today, if that expiry was still live, 7750 would be R1.

Essentially, 7750 dominated the last four days of the March expiry. It still could have capitulated at any time, especially either the Wednesday or expiry day, Friday, but it seemed happy to just sit there banging its head on 7750.

Perhaps, with one eye on the April expiry, they were more than happy to see it between 7650 and 7750.

On a final note, regarding March, had the zone changed, 7450-7550 would have been the favourite, so the bulls got away with one there for sure.

Anyway, April, and the most striking aspect is the zone is at 7650-7750, and has been since before the 11th significantly.

This is all well and good as long as the market is happy to stay in there and, we are certain, the market would be well pleased taking all that time value again.

The issue this time, is that there is an awful lot of Y ratio either side of the zone.

This gives you a potential trading range over the next five weeks (that includes the April Bank Holiday) of 7550 all the way up to 7900.

As we said last week, the FTSE may be arriving at the party just before the police.

However, don’t lose sight of the lack of support either. Either, or both ways, it could be a real fun ride this expiry.

 

Range:            7650  to  7750      

Activity:          Strong

Type:              On balance only just bearish

www.hedgeratioanalysis.com

 

Nb. Our comment from 11/03/24 (NB. The March expiry)

 

Hate to say it but, and this is what is both good and bad about London, the FTSE is currently under total sway of derivatives.

The overall move this week was down 22.76-points, yawn.

However, there wasn’t a day that didn’t involve the upper boundary of the zone. If the market itself can’t generate enough firepower to outdo the dynamic delta, then it will always end up like it has for the last three weeks.

Monday, as anticipated, the FTSE retreated back inside its zone. The intraday high of 7654.81 on Tuesday saw it try, but fail to break back out.

The Wednesday was the big day, despite the official open of 7646.16 the real one was 7651, significantly above the upper boundary. The very first bar on the open established the intraday low of 7639.03 but, those first few minutes, were the only time the market was below said boundary.

Sadly, memories of 7750 curtailed the bull’s enthusiasm and, both Thursday and Friday, were all about said boundary yet again with the intraday lows of 7645.06 and 7646.20 respectively.

This brings it all around rather neatly to the final week of the mighty March expiry.

It really is a great expiry to absorb all that time value due to the fact it is a triple, and therefore at least three times the size of intermediary expiries.

Anyway, rollover Wednesday is now but a heartbeat away so, if can get into its zone for that then job done, then it can party for the final two days.

Being realistic, this expiry has been a result for the FTSE, as if it wasn’t for every other Western market hitting all-time highs, then the FTSE would have spent far more time in its zone. This would have meant visiting 7550 and, with only Y2 beneath that boundary, 7450 would have been a very distinct probability.

So, going nowhere, was actually a result for the bulls.

Early days but, April looks a far better expiry for the bulls, however it may just be wanting to join the party when it’s winding up.

 

Range:            7650  to  7750      

Activity:          Very poor

Type:              On balance only just not bearish

www.hedgeratioanalysis.com

Available to buy now

The faction account of the Big Bang, The Great Storm and the market crash of 1987, available in eBook and paperback here, a must read if you don’t believe in history repeating itself.

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February 20th, 2024 by Richard

The FTSE starts the mighty March expiry in an interesting situation.

Nb. Our comment on 19/02/24

Well, the last week of the Feb expiry was certainly exciting, as these weeks often are.

The Monday started out quite boring and, apart from a test of the bottom boundary (7555.47), maintained this indifference to the close of play.

Then it came to life on the Tuesday, with derivatives fighting a rearguard action to keep the market even in its zone’s proximity.

Rollover Wednesday saw this fight intensify, but in the end the market did regain its zone on this significant day.

Thursday was like Monday, but Friday saw battle resume and, although the official open was 7597.53 (the previous day’s close), the real open was around 7641. Right on the upper boundary. So, to hold the market for a settlement price of 7660.15, was a hard-fought victory really. Especially, as after that, the market leapt up 114-points.

Good expiry though for derivatives, and you if you knew where the ratio levels were, but the first triple of the year, March, is an entirely different beast.

While in the intermediary expiry Feb, the market found R1 too much to handle at 7700. Or, more precisely, the dynamic delta futures selling equivalent to R1, too much to handle, but everything ramps up in a triple such as March.

Of course, any ratio inspired futures selling, is going to have an impact, its just now, only the higher ratios are the ones that can become pivotal for markets.

As we know, precisely, where the ratio levels are, the only question that remains is how sensitive this market is going to be?

After Friday’s rise, this means the mighty March expiry is already going to start in R1 ratio, a good baptism by fire if you like.

This bandwidth goes up to 7750, so not that far away at all. More significantly, it also skips a level, as it is R3. A very solid R3 as well, so the market should notice it for sure. Quite often, it sometimes does take a while to build up enough of a head of steam for the market to tackle this number of futures selling, so not only is it a high ratio level but its also catching the market early, so best watch out.

 

Range:            7650  to  7750      

Activity:          Very poor

Type:              Bullish

www.hedgeratioanalysis.com

 

Nb. Our comment from 12/02/24 (The February expiry)

Indeed, it was “another exciting week going nowhere”.

Actually, it did go somewhere, which was back up to R1. What we are referring to, is the fact that on the week the overall change was a fall of 42.96-points but, and far more importantly, it finished back inside its zone.

And it followed the ratio playbook to the letter again last week.

Monday was a sighting shot, with the intraday high being a test of the upper boundary at 7650.

Which did then prove “porous” as after Monday 7650 hardly caused a ripple in the market’s movement, in either direction. Tuesday and Wednesday, with intraday highs of 7693.60 and 7694.90 respectively, were definitely tests of R1 at 7700.

Interestingly, Tuesday was the only day last week that the FTSE actually closed outside its zone. This just goes to prove how serious they were in trying to continue with the rally, and therefore how serious the test of R1 was on Wednesday.

The last two days of last week were all about the market reestablishing boundaries. The intraday high on Thursday was 7653.40 and the intraday low on Friday was 7557.35. Basically, a two-day zone bandwidth test.

This makes next week rather interesting, especially in light of the changes in the ratio table.

Below the zone it looks quite dramatic but, all that has really changed, is we have lost Y2 which has become R1. The other R ratios remain the same.

Above the zone, they have also strengthened, but not by enough to effect any changes.

The first few days, at least until rollover Wednesday, should be all about the zone but, and as we say every time, the final week of an expiry always gets a bit excitable.

What is different this time, is next up is the mighty March expiry, the first triple of 2024. Suffice it to say, but the zone mirrors February’s however R1 starts at 7650 above it and not until 7450 below it however, as everything ramps up by a factor of three at the least, it can sometimes extend its influence forward into this current expiry due solely to the weight of its numbers alone.

 

Range:            7550  to  7650      

Activity:          Very poor

Type:              On balance bearish

www.hedgeratioanalysis.com

The faction account of the Big Bang, The Great Storm and the market crash of 1987, available in eBook and paperback here, a must read if you don’t believe in history repeating itself.

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October 24th, 2023 by Richard

After a perfect October expiry in the FTSE, let’s hope for more of the same in November.

Nb. Our comment on 10/23/23

So, the “big question” was answered and, yes, it did stay there for the next three days.

It did stray above and therefore outside of its zone early on in the morning but, for the vast majority of the day, it stayed between 7550 and 7650 on rollover Wednesday 18th.

So, yay, the perfect expiry, as we mentioned last week “Anyway, for the perfect expiry, we just need the market to be in its zone on preferably rollover Wednesday” (please see below).

For the record a perfect expiry is when the market hits a ratio level above or below its zone, then goes on to test the corresponding level at the other end, before finishing in its zone.

For the October expiry this meant hitting R3 at 7750 (intraday high 7746.53 on 21/9/23), before reversing all the way down to DR at 7400, don’t forget it went from R2 at 7450 then straight to DR, so no R3 (intraday low 7384.20 on 4/10/23) before closing on rollover Wednesday at 7588.00.

Anyway, moving on, and the ratio table for the November expiry makes for interesting reading.

Especially as the market is already in the R2 ratio bandwidth, courtesy of the fallout from the last two trading days of the Oct expiry.

This makes 7350 the critical level, and it is R3, but only just, as if you look at Friday’s table (on the right as you look at it) R3 didn’t start until 7250. It should still carry a hefty clout, as it is R3 after all but, just bear in mind, it could very easily become R2 again.

Either way, going any further down, this market will henceforth just keep encountering a lot of dynamic delta inspired futures buying.

All the while, R2 at the other end doesn’t kick-in until you hit 7850, meaning there is far more upside as we see it than downside in this expiry.  

 

Range:            7350  to  7450      

Activity:          Good

Type:              Neutral

www.hedgeratioanalysis.com


Nb. Our comment from 10/16/23 (Nb the October expiry)

Well, it wasn’t so much as “wading through ankle-deep water”, as we described what it would be like for the FTSE finding itself in the new Y ratio bandwidth at the start of last week, but rather a skim board across it.

On Monday, the intraday high was 7540.57, just below the bottom boundary of the zone.

However, on Tuesday, it just blasted straight through it and into its zone. Which is literally 100-points of no ratio at all.

So, absolutely no surprise when on Wednesday the intraday high was 7651.98, the upper boundary of its zone.

From DR at 7400 all the way up to its zones upper boundary at 7650 is quite a ride, a 3.38% one to be precise.

But don’t forget, the first leg was from 7750 down to 7400, a 350-point trip. Making the round trip a whopping 600-points, virtually 8%, which is outstanding.

Made even more so when you consider that at the very start of this expiry the market started at 7711.38, and is now currently at 7599.60, which is only a move of just over 100-points.

Anyway, for the perfect expiry, we just need the market to be in its zone on preferably rollover Wednesday, but the actual expiry on Friday would do at a pinch.

As you can see in this week’s ratio table, the market finished dead centre of its zone. That was after it tested 7650 at the start and at the end of the day as well.

So, the big question is whether it can stay here for the next three days?

7650 is still a solid R1, but has been tested over the last three trading days, so is already on strike 4. However, it is backed up by R2 at 7700. The trouble is, in this last week, activity spikes and positions change even more frequently, so it can be a constantly moving target. Nevertheless, as things stand, if it can hold out in its zone for the first three days, then it can cut-loose on the last two.

 

Range:            7550  to  7650      

Activity:          Poor

Type:              On balance not bullish

www.hedgeratioanalysis.com

The faction account of the Big Bang, The Great Storm and the market crash of 1987, available in eBook and paperback here, a must read if you don’t believe in history repeating itself.

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August 9th, 2023 by Richard

After failing, yet again, at 7700 for the FTSE it has been all about its zone ever since.

Nb. Our comment on 08/07/23

The trouble with when a market, like the FTSE currently, is so compliant to the influences of the ratio levels, is that is has to end at some point.

Bit like a petulant teenager, eventually it will want to test the boundaries of what it can get away with.

In the meantime, one has to simply follow the ratio play-book.

Last Monday, the 31st, saw the FTSE attack 7700 very first thing, with two spikes about 10mins apart, before it fell back to the intraday low of 7667.81. Then in the afternoon, it had another go, hitting the intraday high of 7722.92 before, significantly, finishing at 7699.41.

Tuesday saw the intraday low of 7650.15, or R1 (albeit a very weak R1) in our language.

Wednesday, the real opening was below 7650 for the record, but by then it was into Y1 ratio bandwidth.

Thursday, saw the market test 7450, very precisely first thing, then after a small bounce, with more vigour, establishing the intraday low of 7437.88 before finishing at 7529.16. Of course, 7450, was the upper boundary of the zone.

Which presumably moved on Friday, as we suggested last week it might, to 7500-7600.

This is exactly where the market spent last Friday of course.

Now, we enter the third week of this expiry, and after last week’s 250-point (3.3%) trip, we rather hope it will relax for a bit inside its new zone. Especially as the week after it will be the rollover and expiry. The rollover being into the third biggie of the year…

Therefore, this week 7500 and 7600 become absolutely critical levels and, the astute, will have noticed the SPX closed below its zone on Friday. Interestingly, both the SPX and the FTSE were in or around their respective zones on Thursday and Friday, rather coincidentally.

It is not a given that this new zone is permanent, as it could easily revert back to 7350-7450, and the bottom boundary is already on strike one. However, if the SPX decides it doesn’t want, or deserve, to be in bear territory, that could influence proceedings over here. Either way, of course. So, basically, watch those boundaries for any possible break out, while bearing in mind we are actually only at the halfway point for the August expiry.

 

Range:            7500  to  7600      

Activity:          Moderate

Type:              Neutral

www.hedgeratioanalysis.com

 

 

Nb. Our comment from 07/31/23

Well, it wasn’t so much a “rude awakening” when the market encountered 7700, but more like a brick wall.

Apart from last Monday, every other day last week was a titanic battle with 7700.

Although, admittedly, the inroads in the last two days were greater than those on the Tuesday and Wednesday (intraday highs 7702.35 and 7702.74 respectively) with intraday highs of 7709.66 on the Thursday and 7716.82 on the Friday.

Despite the obvious failure to break through, you have to admire the commitment and tenacity in trying.

However, and far more importantly, is what may be in store for us this week.

As one can see there has been a lot of changes in the ratios, and deservedly so as activity has been at a very decent level, even for week one of the expiry.

First and foremost, 7700. It is now part of the R1 ratio bandwidth, which is still 7650 up to 7750. However, it still represents a step-up within that bandwidth, as at 7700 it is just below the threshold for remaining R2, whereas 7650 is just above the threshold of becoming Y2.

That said, 7700 is already on strike four, with the intraday tests to innumerable to count. In short, we are a bit surprised it remained so resilient on Friday.

Overall, obviously the ratios have fallen around where the market is currently but, outside that, they have actually risen, on both sides.

The upshot is, that the FTSE now has a bit more headroom but, R2 and R3, now lurk at 7750 and 7800 ready to ambush it.

Whereas, below 7700, it is now practically (ok 7650 notwithstanding) all Y ratio. So, brace yourself should this market get even a minor shock.

One saving grace may be that the zone may move to 7500-7600, which may limit the downside risk a bit.

 

Range:            7650  to  (7700) 7750      

Activity:          Good

Type:              Neutral

www.hedgeratioanalysis.com

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August 2nd, 2023 by Richard

What a fight 7700 put up in the FTSE

Nb. Our comment on 07/31/23

Well, it wasn’t so much a “rude awakening” when the market encountered 7700, but more like a brick wall.

Apart from last Monday, every other day last week was a titanic battle with 7700.

Although, admittedly, the inroads in the last two days were greater than those on the Tuesday and Wednesday (intraday highs 7702.35 and 7702.74 respectively) with intraday highs of 7709.66 on the Thursday and 7716.82 on the Friday.

Despite the obvious failure to break through, you have to admire the commitment and tenacity in trying.

However, and far more importantly, is what may be in store for us this week.

As one can see there has been a lot of changes in the ratios, and deservedly so as activity has been at a very decent level, even for week one of the expiry.

First and foremost, 7700. It is now part of the R1 ratio bandwidth, which is still 7650 up to 7750. However, it still represents a step-up within that bandwidth, as at 7700 it is just below the threshold for remaining R2, whereas 7650 is just above the threshold of becoming Y2.

That said, 7700 is already on strike four, with the intraday tests to innumerable to count. In short, we are a bit surprised it remained so resilient on Friday.

Overall, obviously the ratios have fallen around where the market is currently but, outside that, they have actually risen, on both sides.

The upshot is, that the FTSE now has a bit more headroom but, R2 and R3, now lurk at 7750 and 7800 ready to ambush it.

Whereas, below 7700, it is now practically (ok 7650 notwithstanding) all Y ratio. So, brace yourself should this market get even a minor shock.

One saving grace may be that the zone may move to 7500-7600, which may limit the downside risk a bit.

 

Range:            7650  to  (7700) 7750      

Activity:          Good

Type:              Neutral

www.hedgeratioanalysis.com

 

Nb. Our comment from 07/24/23

Well, that battle with R3 at 7250 seems like it was ages ago, but it was in fact, just over a week ago, on the 10th and 11th of July.

So, since then we have seen the FTSE rally from R3 all the way up to the top boundary of its zone at 7650. A very impressive 400-points, or 5.52%. Brilliant.

And to top it all off, the timing couldn’t have been better, as on rollover Wednesday the market manged to get its fingertips above the bottom boundary at 7550. And if that wasn’t enough (which it would have been for us considering the journey it had to make) this also resulted in the final two days of the July expiry being spent inside its zone. A win: win, literally.

If you hadn’t guessed by now, obviously the zone didn’t move.

Also, we make no apology for our lack of bravery in not calling this last week as, exactly as stated, we need to be calculating the ratios daily to be able to do that with any degree of accuracy during generally tumultuous expiry weeks.

However, it does, very succinctly and graphically, reveal the importance of the zone.

This is now the problem however, as we now enter the August expiry.

As the zone here is still at 7350-7450, which is a long way from where the market had to get to for the expiry of July.

On top of which, having closed at 7663.73, means the FTSE will wake up today in the R2 ratio bandwidth. Which is not good news for the bulls.

We must also point out that in the ratio table it shows R3 starting at 7750 but, at 7700, it is only just below the threshold. So, please bear this in mind should the market get there, especially as that may be its first rude awakening as to how much dynamic delta it will now be facing in the August expiry.

Hope you managed to ride the rally up from R3 but, unless the ratios change, August looks like one for the bears.

 

Range:            7650  to  (7700) 7750      

Activity:          Very good

Type:              On balance only just bullish

www.hedgeratioanalysis.com

Available to buy now

The faction account of the Big Bang, The Great Storm and the market crash of 1987, available in eBook and paperback here, a must read if you don’t believe in history repeating itself.

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