Dec
16
2024
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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Nov
25
2024
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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May
16
2023
May 16th, 2023 by Richard

Job almost done in the SPX May expiry, but June may well be a different kettle of fish.

Nb. Our comment for 05/16/23

What neatly encapsulates this expiry is the fact that this market closed at 4137.04 the day before we last posted, and here we are with yesterday’s close of 4136.28, a miniscule move.

OK, it has only been a few trading days, but the point remains.

Just to emphasise this, the close on the very first day of this expiry, the 24th April, was actually 4137.04…and no this is not a typo, this is really the exact same close. Furthermore, it’s not as if we have selected dates to fit, as today is our normal posting date for the SPX, and we can hardly fudge the first date of the expiry either.

In a way this has been a fortunate turn of events as, way back at the very start of this expiry, the Y ratio bandwidth stretched from 3945 all the way up to 4270. So, it could very easily have been a very volatile expiry indeed.

As it happened, all we got was a test of Y2 at 4180 on the 1st May (intraday and expiry high of 4186.92) before it fell back to meet the rising zone. Which was what last week was pretty much all about, especially the last three days.

Of course, this week it is all about the rollover and expiry, but really all the hard work has been done, or at least in our book it has. To explain a bit further, the Y1 ratio bandwidth alone goes from 3995 up to 4205, which is a bit odd to be fair, but means there is no, or virtually no, pressure on this rollover and expiry as long as it stays within these parameters. In reality, only the rollover is fine, so it just needs today and tomorrow to be boring and its job done.

More importantly, looking ahead to June and, it being a triple and therefore significantly larger, can be and normally does exert influence from early on.

Interestingly the zone in June is still at 3995-4005, which will be an overhanging risk to the May expiry, unless it does change and move up.

Where, at first glance, 4145-4155 looks to be the front-runner, which is actually higher than May’s. However, with so much more ratio about, and therefore by definition, so much more dynamic delta, we very much doubt this “relaxed” environment will be able to continue for very much longer. No bad thing we think either.

 

Range:            4105  to  4205           

Activity:          Very poor

Type:              Bearish

 

www.hedgeratioanalysis.com

 

Nb. Our comment from the 05/11/23

 

Apologies for not posting sooner in respect of the SPX but, in truth, very little has actually happened since we last commented.

What has changed, is that the zone has eventually moved up, which happened the other day, the 9th May.

So, this has been a very long time in the making, which has been rather boring in all honesty.

In the meantime, the index has been “pinging” about so, all in all, it has been acting totally normally under these conditions.

The only aspect you may have missed, is that back on 1st May the intraday high was 4186.92, which was a very solid test of Y2 ratio, then standing at 4180.

This is also, so far at least, the expiry high.

However, the zone may have moved, but as this has just been inside the overall Y1 ratio bandwidth and, as it was so well flagged in advance, this is hardly a game-changer.

What it has done, is level out the ratios on either side, so one could say it is now a far more balanced overall ratio alignment.

Or more graphically, there is now 100-points of Y1 ratio either side of the zone. The depth of the Y2 bandwidth is still skewed in favour of the bulls…as in, there is far more of it above the zone than below it.

Although, at the end of the day, with over 200-points of Y1 ratio bandwidth to play around in this index has so much scope this extra distance to R1 will not exert any great influence as things stand with the market where it is currently.

The only surprise, to us at least, is why we aren’t seeing 100-point daily moves?

 

Range:            4105  to  4205           

Activity:          Poor

Type:              On balance just not bullish

 

www.hedgeratioanalysis.com

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May
14
2023
May 14th, 2023 by Richard

The FTSE100 regains its zone as we enter the run-in to the rollover and expiry.

Nb. Our comment on 05/15/23

This has definitely been one of those expiries when it has all been down to the market and how it has/will interact with the ratio levels as, on the whole, they have remained static throughout.

For example, below the zone, this time there is only a minor change to R2 and the only other change this expiry was to R1 back on the 10th. Above the zone there have been a few more changes, but all mainly confined to R3, which hasn’t had much impact in truth.

So, as we have been saying, it has all been about how the FTSE has been interacting with the ratio levels at each boundary of its zone.

Very neatly encapsulated by Friday’s action centred around 7750, with the close actually managing to get the index back inside its zone for the weekend.

All they have to do now is hold it in its zone for either the rollover, the preferred choice, or the actual expiry.

Which, when you consider the last two expiries where we were one of the few, if not the only ones, to warn of the dangers in the March expiry (fell 543.53) and then call the bounce in the April expiry (up 478.82), it’s not surprising it wanted a rest before the second triple witching expiry of the year, June, kicks in.

And we did say we would try to give you the “head’s-up” for June so just to let you know this is how things stand at the present.

Don’t forget it is still very early days for the June expiry but the zone here is at the same level as the May expiry, which could make for a very easy and peaceful transition. However, the real meaty ratios don’t kick-in until 7450 below the zone and 8050 above it, although they do get a bit chunky at 7950, so plenty of room for a lot of excitement as well.  

 

Range:            7750  to  7850      

Activity:          Poor

Type:              Bullish

www.hedgeratioanalysis.com

 

 

 

Nb. Our comment from 05/10/23

All these Bank Holidays are creating mayhem to our normal schedule of publication, so apologies for that.

Tuesday 2nd May may seem like an age ago that we last commented but it has only been five UK trading days.

As you can see in our previous comment, we didn’t really understand why they tried so hard in the last hour of trading to get the FTSE back above its zone but, in hindsight, it was almost definitely just for valuation purposes over the long weekend that was also a month end, especially when one considers what happened last week.

And rather than be all about the upper boundary of the zone, last week was all about the bottom boundary, 7750.

The market did close below the zone on Wednesday (rate decision day) but quickly regained it on Thursday.

Meaning four out of the five last trading days have been in its zone.

For those that have been following how the dynamic delta affects the benchmark indices, this pattern for the FTSE should not be new.

First week about the resistance above the zone. Second week all about the upper boundary, while the third all about the lower.

And before you know it, hey presto, we are into the rollover and expiry week.

So, things should at least get a bit more agitated as we approach this but, please bear in mind, that not only has time value has been disappearing rapidly but the second triple of the year has been sneaking up on us, the June expiry.

Hopefully, we will be able to give you the head’s-up next week as to how June is shaping up, but in the meantime just concentrate very closely whenever this index approaches one of its zone’s boundaries.

 

Range:            7750  to  7850      

Activity:          Moderate

Type:              On balance only just bullish

www.hedgeratioanalysis.com

Available to buy now

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Apr
04
2023
April 4th, 2023 by Richard

Can the SPX maintain this new-found aggression, or will the R1 ratio dynamic delta be too much for it?

Nb. Our comment for 04/04/23

 

Commentators curse or what. No sooner do we say it doesn’t look like it wants to get above its zone, then it does just that.

In our defence, the test on Wednesday 29th was about strike 5, so it really wasn’t a total surprise.

Of course, once it had managed it then there wasn’t really a backward glance.

The problem was, as we mentioned last week, that the R1 ratio was getting closer, narrowing the overall Y ratio bandwidth.

However, in our last comment R1 had moved in to 4080, but by the Wednesday it had retreated back to 4105, from where it was originally.

And it was 4105 that caused a lot of resistance to this index on Friday, but a level it significantly closed above.

Yesterday, Monday 3rd, saw this index open strongly, but then come back to 4105 on many occasions. In fact, it spent almost all but the first and last hour bouncing around it.

So, the big question is whether or not it can cope with being in the R1 ratio bandwidth.

On the evidence of Friday, yesterday and today we have to say that it appears to be really struggling with it.

R1 doesn’t generate a huge amount of dynamic delta futures selling, but it really all depends on the markets appetite at any given moment in time.

With this in mind, there is a considerable step-up in the ratio level at 4155, albeit being still within the R1 bandwidth. Then you have R2 at 4205, as you can see in the table. So, to us at least, if it doesn’t start taking on this level of dynamic delta then back to the zone (or further) it goes.

 

Range:            3895  to  4005           

Activity:          Moderate

Type:              Neutral

 

www.hedgeratioanalysis.com

 

Nb. Our comment from the 03/28/23

 

It really didn’t take very long last week for the SPX to prove our “Point one”, jumping over 100-points to get back to its zone at 4000.

Of course, this would have definitely been aided and abetted by the FTSE’s reaction to DR ratio at the start of its April expiry trip.

The Wednesday and Thursday were also all about their zone. Wednesday saw the rate hike and the market swing from 4039.49 to 3936.97.

However, on the Thursday the market retested the zones upper boundary with the intraday high of 4007.66.

This was also strike three, so we thought it may break through, but the close at 3948.72 was not good news for the bulls.

Friday was a bit odd for us, as it really didn’t achieve anything. Even the intraday low of 3909.16 was a bit shy of R1 at 3895.

Yesterday, saw strike four of the upper boundary with the intraday high of 4003.83, but still no close in or above its zone.

Basically, the SPX is in neutral for us. Although it is toying with its zone, it still can’t quite muster the conviction to break convincingly above it.

In the meantime, the more preferred option seems to be to reside below it, therefore remaining in bear territory.

The only issue we have with this is that the overall Y ratio bandwidth is shrinking all the time, currently standing at just 185-points. Quite a difference to last week when it was 310-points.

The upshot of which, to us at least, is to potentially restrict the overall trading range. Making it a bit boring really.

 

Range:            3895  to  4005           

Activity:          Moderate

Type:              Neutral

 

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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Oct
12
2022
October 12th, 2022 by Richard

The SPX continues with its ratio stepping-stone decline, but will the rollover and expiry rescue it?

 

Nb. Our comment from the 09/27/22

 

The last five trading days has simply been a ratio stepping-stone decline.

We last published on Tuesday 20th. On Wednesday 21st the market intraday low was 3789.49 and close was 3789.93.

R1 was, and still is, at 3795. Of course, this was the day the Fed hiked by 0.75%, but it was the rhetoric that did the damage, so for R1 to even have an influence was pretty amazing. The fact that the market closed just a few points below it, was also rather significant…as we have seen in the past.

Next stepping-stone was R2 at 3745, on the Thursday, and the market duly obliged with the intraday low of 3749.45.

Could this have been pivotal? Obviously not, but as the market gapped down at the open on Friday to 3727.14 this was a moot point anyway.

So, Friday and Monday (yesterday) were all about the next stepping-stone, R3 at 3645.

Fridays intraday low was 3647.47 and yesterdays was 3644.76.

Apologies, we probably should have warned you when R3 fell from 3670 to 3645, sorry.

Anyway, it is still there but, having had two severe battering’s over the last two days, it is understandably weakened. In fact, so much so, it is only just above the threshold, and if the rate of decline continues today then it won’t be for much longer.

Actually, you now have to be looking at the low 3600’s to see the same level of R3 ratio that this market first encountered on Thursday.

Sometimes, strike two can be enough of a confirmation and can turn a market around (especially with the FTSE rebounding so well off 6950, giving it a friend), but please remember that the next time it goes down there, not only is it only just R3 but that would be strike three.

At least the bulls have the dynamic delta batting in their corner now, so the only question that remains is whether or not they want to make use of it?

 

Range:            3645  to  3745           

Activity:          Poor

Type:              On balance bullish

 

 

Nb. Our comment for 10/12/22

 

The SPX has certainly continued with its “stepping-stone decline”, which has been quite relentless in fact.

Also, apologies for the lack of comment as we appreciate without it this is perhaps not so obvious to you as it is to us.

On Friday 30th September the market intraday low was 3584.13 when R3 had fallen to 3595. Sadly, without any updates, our last published table had R3 AT 3645. Funnily enough, between these two dates, R3 paused ever so briefly at 3620, coincidentally the day when the intraday low was 3623. Anyway, the following Monday and Tuesday, saw this index put on over 200-points.

However, and as one can see in the above table, the decline in the ratios below the zone has continued unabated. So much so, that now R3 is standing at 3495, having been 3520 yesterday. Which was never going to help the bulls of course.

For the record, a more solid line would be 3545, and anticipating the rate of decline is very haphazard but we nevertheless thought it worth mentioning.

The real issue now, is the zone.

Especially as next week is the rollover and expiry.

So far, it hasn’t budged, which honestly is bit of a surprise. However, with Y1 now appearing below said zone, and the final week approaching, we are certain it won’t stay like this for much longer.

First the rate of decline in the ratios below the zone, especially R3, has to be arrested.

Then the zone needs to drop to an attainable level. These do not have to happen independently either by the way.

This will then pave the way for derivatives to rescue some semblance of control over this expiry and, very probably, mitigate some of those losses that must be staring someone in the face.

The trick will be in the timing.

 

Range:            3495  to  3645           

Activity:          Poor

Type:              Neutral

www.hedgeratioanalysis.com 

 

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Oct
10
2022
October 10th, 2022 by Richard

Fascinating evolution of the FTSE ratios this expiry, means there's a lot left to come.

 

Nb. Our comment from the 10/03/2022

As we said last week it certainly was a fantastic battle the market had with R3 at 6950, and it was on the Monday as well.

In fact, we thought it might just have been a case of job done when the market bounced right back int the 7000’s, and held there on the Tuesday.

Wednesday was the crunch day, and although the official open (always the previous days close) was 6984.59, in the real world it was nearer 6918.

What this meant was that is gapped down at the open to below R3 at 6950, if it was even still there in fact.

As you can see from the above table 6950 is now R2, having lost a third of its potency. The trouble is that we don’t know when that changed, and it could easily have been on Wednesday.

The fact that R3 is now 6850 and the last three intraday lows have been 6836.28, 6829.29 & 6840.07 does tend to suggest this as well.

Without calculating the ratios daily, we have no way of knowing, sorry.

So, apart from the ratios below the zone all looking weak, the other big news is the zone itself.

And it is not a small drop either, but a 200-point fall.

The upside, is perhaps that come the rollover and expiry, that this might be far more attainable but, the not so good news, is that there is still three weeks left in this expiry.

Obviously, falling ratios coupled with a falling zone are both bearish, as is the rising ratios above the zone. However, R3 does still seem to holding its own.

Plenty of upside now, the only question is will 6850 remain at R3 to give some downside protection?

 

Range:            6850  to  7050      

Activity:          Good

Type:              On balance just bullish

 

Nb. Our comment on 10/10/22

 

Despite the fact that R3 had retreated to 6850 last week, it seems the market hadn’t realised.

As R2 at 6950 evidently produced enough dynamic delta to achieve the same result, with the intraday lows on Thursday and Friday being 6961.10 and 6960.36 respectively.

If the market should go back there again even R2 has retreated, back to 6900 now but, with another drop in the zone, this now makes 6950 not only R1 but also the bottom boundary of this new zone.

Again, a falling zone coupled with falling ratios below and rising above are all bearish signs.

And don’t forget this market has already tested R3 (when it was at 6950 on 26th Sept with the intraday low of 6937.40), so the fact it is now at 6800 means that this market is not out of the woods yet.

However, if it can stabilise in its fallen zone, and the ratios either side can also stop, or change, their direction of travel then it might give a chance to the bulls.

Especially as we now have only two weeks to go in this expiry.

And with the way this expiry has evolved, above the zone you now have 300-points of just the minimal Y ratio. A level of ratio that should hold no fear for an index that has been messing with R3 and R2 levels already.

Of course, so far this expiry it has been one-way traffic, don’t forget the “opening” price on day 1 was 7236.68, and back then the zone was 7250-7350 and all the Y ratio was below it.

Almost the mirror image of what it is now, and back then, on the 20th September, did you think that the market would go down through all that Y ratio until it hit the R ratios?

 

Range:            6950  to  7050      

Activity:          Moderate

Type:              On balance definitely bullish

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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Sep
22
2022
September 22nd, 2022 by Richard

The FTSE was in ratio trouble from day1

 

Nb. Our comment from the 08/19/2022 (Not published)

 

Nb. Our comment on 09/21/22

 

Well, the September expiry did end up a textbook one.

On the Wednesday and Thursday, the intraday lows were 7259.24 and 7258.67 respectively, and the EDSP was 7264.45. So, there was no doubt at all they held it in its zone over the rollover and expiry, which when you consider what was happening in the US, then this is even more impressive.

Moving swiftly on to more important matters…October, and the new 5-week expiry.

Obviously, the close last Friday was south of the zone, so the grand intentions of September evidently didn’t carry across into the October expiry.

With the short notice Bank Holiday on Monday no doubt affecting things, Tuesday was going to be crucial in determining what the possible intentions might be for this expiry.

And having been almost 100-points higher at one stage seemed to answer that. However, it really didn’t take much to knock the legs out from under that rally, and very early on into the proceedings as well.

More importantly, the bottom boundary of the zone (7250) hardly put up any resistance at all. In stark contrast to the week before.

The next level of support is not until it hits Y2 at 7150.

After that, you have to wait until 7050 before it hits R1.

Even from the very start the ratios were lopsided (no Y ratio above the zone), so it always had the potential to be a hard slog this expiry for the bulls.

Therefore, the only question that really remains, is what will tempt them back in to the fray, Y2, R1 or might it take R3 at 6950?

 

Range:            7050  to  7250      

Activity:          Average

Type:              Neutral

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Sep
20
2022
September 20th, 2022 by Richard

The SPX starts the Oct intermediary expiry with few, if any, positive signs.

 

Nb. Our comment from the September Expiry

 

Apologies we didn’t get the chance to publish one last comment in the expiry week.

Regardless of this though, you should have all had a decent experience as our “serious Ratio level for the SPX”, namely 3895, did indeed prove to be the turning point of the entire expiry.

Well, at least until the final couple of days. Which by then the entire ratio picture had changed anyway, as is the norm with these things.

But, in-between, the market bounced from R2 at 3895 all the way back up to 4119.28, a very impressive 224.28-points, which made our expiry, so the final few days were not that significant to us really.

For the record, the settlement price was 3871.24, but 3895 had slipped from R2 to R1. With R2 finishing at 3845.

The zone was still at 4000, so although the sharp fall in the ratios eased the pain, the end result was not that good for derivatives.

At the end it was just Y2 ratio from the zone down to 3895, so not enormously painful, but still enough to smart.

 

 

 Nb. Our comment for 09/20/2022

 

And before you know it, here we are in the October expiry.

Which means we have returned to the intermediary ones, and not only that, but this is a five-week expiry as well.

This can sometimes mean the first week can be a slow-burner, however from the overall level of activity, as well as the daily one, this does not appear to be the case this time.

Reinforcing this, is the change we have seen in the ratios so far this expiry already.

Below the zone, we have seen the appearance of Y1, while at the same time, both R1 and R2 have seen significant dips.

However, the big changes have come above the zone, where in the space of just a few trading days, all the ratios have come in significantly. To the tune of a 100-points, or more.

Admittedly, the zone is unchanged but, the way the ratios are developing, is very bearish.

Of course, October is but two days old, so one shouldn’t jump to conclusions.

On top of which, from R1 to R1, it is now 3795 up to 4205, a whopping 410-points. Not as bad as we have seen, but a widening from September.

Which in itself is not good, as the Y ratio bandwidth has been ridiculously wide for far too long now, and to see the narrowing in Sept now reversed is simply not good.

Unless you are a vol trader that is, as such a wide trading range is certainly not going to hurt your cause any.

For the rest of us, the bearish movement in the ratios is what it is. All it really needs is the confirmation of a move down in the zone.

Or, for the market to break back up over it, and therefore back into bullish territory, which they singularly failed to hold onto in the last expiry, so that’s not a good sign either. All told, not an auspicious start really.

 

Range:            3795  to  3995           

Activity:          Average

Type:              On balance only just bullish

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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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Sep
05
2022
September 5th, 2022 by Richard

The FTSE condenses an entire expiry into just two weeks, a sign or is it now done?

 

Nb. Our comment from the 08/30/2022

And too much for them it certainly was.

A very interesting thing also happened last Monday 22nd as the intraday high was in fact 7550.41 (the previous close and Monday’s open being 7550.37).

We never saw it, don’t think anyone did actually, but it’s there in black and white for all eternity despite it being an anomaly IOHO.

The warning signs were there, as on both Tuesday and Thursday the market got back up to the low/mid-thirties.

And we have said this often in the past, that when the market knows there is a huge futures seller at 7550 and then starts playing “you first”, “no, after you” and “please, I insist” but no one is being brave enough to knock on that door again, it’s always a bad sign. Great if you’re a bear though naturally.

Getting back to the present, and the significance of this market closing below 7450 should not be underestimated.

This is because the next level of support is in fact the zone, the upper boundary still being at 7350.

Of course, London is going to be playing catch-up as it was closed yesterday so still has to account for a chunk of Friday’s drop as well as Monday’s.

But, if the FTSE does test its zone, we will be happy to speculate that when we published our comment on the 22nd mentioning the zone at 7300, not many, if any, probably saw that as a likely target.

Means that our trading range is quite a significant one this time, as 7450 will be a big test for any bulls, whereas if the upper boundary at 7350 doesn’t hold then the lower boundary will very probably come into play.

 

Range:            7350  to  7450      

Activity:          Poor

Type:              Bearish

 

 

Nb. Our comment on 09/05/22

We do sincerely hope that you did take notice of our ratio levels, as you should then have had an outstanding week.

In fact, everything we talked about actually played out in London on the very day the market reopened, Tuesday 30th August.

From the open it went on to test R3 at 7450 but, by the end of the day it had also tested the upper boundary of its zone, 7350.

Which did hold, the intraday low being 7351.12, but that did create a bandwidth test. Meaning a breakout was imminent.

As the market closed that day at 7361.63 the odds were in favour of that breakout being down into its zone.

Wednesday saw the zones bottom boundary tested, 7250, which also made that day a zone bandwidth test.

The next level of support was R3 at 7150, and if you knew that then you pretty much had Thursday and Friday covered. Thursday’s intraday low was 7131.69 whereas Fridays was 7148.50.

The trouble is that the FTSE has now crammed into two weeks what we would expect to take the entire expiry. Well, three weeks actually, the final week being needed to get it back to its zone.

We have seen this setup before, and in those instances the market stayed in its zone for the entire third week (excitedly going nowhere) before the final week breakout.

Therefore, we would like to see the same, but we doubt this will happen as there are too many geopolitical things going on.

So, all we can say, is take note of the ratio levels and then watch very carefully what the market does when its around them, as either up or down, it has now been there already.

 

Range:            7250  to  7350      

Activity:          Very poor

Type:              On balance bearish

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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