December 6th, 2022 by Richard

The SPX retreats back to the safety of its zone after testing R2.

 

Nb. Our comment for 12/06/22

 

We made the point in our last comment (30th Nov – please see below-) that in the absence of a meaningful test of a ratio/delta level the SPX was in essence just meandering.

Luckily, we didn’t have to wait very long, courtesy of the Fed mentioning it might ease the pace of rate hikes, the market leapt up to 4080 on the very day we published.

Obviously, the market got carried away with itself and, no surprise, having been so aimless for so long it was crying out to let off some steam.

The trouble with that was, for the next two days, Thursday and Friday, it was stuck in the R2 bandwidth not being able to make any progress in either direction.

We actually thought, that they had solved the problem on the Friday, what with that massive gap down at the open which took the market down to 4040.17, and below R2 at 4055.

Can’t explain why it finished back at where it started but, as the ratio/delta levels hadn’t changed, a repeat was always a distinct possibility.

Coincidence or not, we were also not surprised to see the market finish yesterday back within its zone when it did repeat this yesterday.

Our problem is, that it is a week early, as the rollover and expiry are not until next week.

In a perfect world, we would like to see this market test R1 at 3945, or even R2 at 3895, as don’t forget there is no minimal Y ratio above the zone, so the market is now well accustomed to R1.

Just to remind everyone, the perfect expiry is when the market test one level of ratio on one side of the zone, then goes on to test the same level on the other side before finishing in or around its zone. Although anywhere in the Y ratio for the SPX is more than acceptable.

 

Range:            3995  to  4005           

Activity:          Only just registered

Type:              On balance not bearish

 

www.hedgeratioanalysis.com

 

 

Nb. Our comment from the 11/30/22

 

Well, the market did try, getting as high as 4034.02 last week, before capitulating.

So, not really very aggressive, as it was only R1 ratio it was dealing with.

Although, it is perhaps worth noting that it may have been just too early in the expiry for the market to deal with R1 ratio but, it could also have been, it just didn’t want to be in bullish territory above the zone.

Both are not good news for the bulls but, one at least, is not so bad as the other. As the market can always become just a bit more aggressive and committed and so therefore become accustomed to R1, but it is a lot harder to swing sentiment as a whole from bearish to bullish.

In the meantime, it seems happy enough to just languish in the Y ratio bandwidth below the zone.

We would be a lot happier had it tested R2 at 4055, and we will be a lot happier when it tests R1 at 3895, as in the absence of either it is just meandering really.

Compounding all this, is the fact that the FTSE is at the other end of the spectrum, having taken on, and beaten, DR ratio, on gone on to challenge B1.

These are very significant levels of ratio, that result in a huge number of futures selling courtesy of the dynamic delta. There is nothing wrong of course with a market that is happy to buy all these futures coming out onto the market. Our issue is that this seems peculiar to London, as the SPX is certainly not exhibiting the same bullish exuberance.

Generally, it is unlikely that both are right.

So, choose your horse and, for what it’s worth, we always go for the SPX in circumstances such as this. Even though the better trading opportunities are this side of the pond.

 

Range:            3895  to  4005           

Activity:          Very poor

Type:              Bearish

 

www.hedgeratioanalysis.com

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December 5th, 2022 by Richard

The FTSE runs into B1at 7600 (twice) and gets knocked back (twice).

 

Nb. Our comment from 11/28/22

Well, the first week was indeed all about the zone but, by the end, it also seems R2 did indeed hold no fear.

Although, we have to admit, judging by the lack of movement, the market evidently found it very difficult coping with the ratio. Bit like walking waist deep in mud, having to deal with the incessant futures selling, if you’re not really up for it.

On Monday last week the FTSE tested the bottom boundary (7350) of its zone with the intraday low of 7343.37.

The Tuesday saw it test the upper boundary (7450), firstly in the morning when it just touched it before getting repelled 30-points, and then again in the afternoon, with the intraday high of 7458.88.

The following two days saw it struggle in R2 above the zone but, on both days, it came down to test the upper boundary for support, or confirmation, with the intraday lows of 7452.84 and 7443.46 respectively.

The end result of all this, is that you now know that the market certainly now knows where the safety of its zone is.

Looking ahead, and there haven’t been many changes in the ratio, and most of those are below the zone, so the ratio situation is very plain to see this expiry.

7550 is now critical for the FTSE and, although it is only DR, it is that level for the market which is coming from R1.

That is a huge leap, 3 entire levels, and don’t forget these are exponential, so this should be like running into a wall, albeit a wall of futures selling.

Also, don’t forget, B1 is also lurking there at 7600, giving it some serious backup.

Looking a lot further ahead and, very much dependant on what happens in the next fortnight, we can see the zone being 7450-7550 in the final week.

 

Range:            7450  to  7540      

Activity:          Poor

Type:              On balance only just bullish

www.hedgeratioanalysis.com

 

Nb. Our comment on 12/05/22

We had to wait until the following day after we published last week for the test of 7550.

The intraday high was 7543.09 on the back of a 4.44% gain on the very heavily weighted HSBC. Although the market finished down at 7512 the writing was on the wall as one could definitely see the bullish flame had been seriously ignited.

We do bang on about the misleading opening level on the FTSE, because it is so very misrepresentative, and such was again the case on Wednesday 30th Nov. Officially the market opened at 7512 but, in reality, it was 7555.

This meant it had essentially leapfrogged the DR level at 7550, and it really didn’t look back again all day.

Rather that Wednesday and Thursday it was all about B1 at 7600, the “serious backup” we called it last week.

The intraday highs were 7599.27 and 7599.70 respectively.

The trouble on Friday, was the market couldn’t break back down over DR at 7550.

If B1 was still at 7600 and the market went back there it would be strike 3 but, as you can see in the above table, B1 now starts at 7650.

Does give the market a bit more headroom but, the market won’t know B1 has slipped, so should it go there again it may well have a nervous reaction.

As we are just at the halfway point of this expiry there is still plenty of time but, eventually the zone down at 7400 will exert its influence, especially as the move up to 7500 is now looking unlikely.

Finally, a note re the Christmas rally and, very typically, this is what we are used to seeing, so if it remains as normal then we won’t see this year’s rally until after the Dec expiry is over.

 

Range:            7450  to  7550        or        7550  to  (7600)/7650     

Activity:          Very poor

Type:              Bullish

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November 30th, 2022 by Richard

The SPX back below its zone and into bearish territory, again.

 

Nb. Our comment from the 11/22/22

 

Firstly, a final comment on the November expiry, where the settlement price was 3983.42.

So, just over 10-points below the zone. After traversing all the way back up from testing Y2 at 3695 (3698.15 3rd) it then tested Y2 at 4005 (4008.97 14th) and, albeit did go a bit higher, to then fall back to 3906.54 before recovering to end within spitting distance of its zone is more than good enough for us.

Hopefully December will be as perfect but, being the biggest of the big, this is a very tall order.

Especially when one considers that this expiry always contains Thanksgiving, and therefore also the usual rally.

Which we have already seen a chunk of we suspect.

More importantly, it means the first week is holiday restricted (actual closures but also absenteeism) so normality doesn’t really return until the last two weeks. Which means, this week and the next, anything can happen.

Apart from the fact it always takes a day or so for everyone to get up to speed with the sheer magnitude of increased activity courtesy of this being a triple and already being about three times the size of an intermediary expiry at the same stage.

Looking at the table above, no surprise the zone is where it is and, in fact, it probably moved before Novembers did.

Slight surprise there is a bandwidth of Y ratio. Although, only time will tell, how long this remains in place.

While it does, this does give the SPX a decent enough trading range to play around in. At least that is, until it decides to get a bit more aggressive.   

 

Range:            3895  to  4005           

Activity:          Poor

Type:              Neutral

 

www.hedgeratioanalysis.com

 

 

 

Nb. Our comment for 11/30/22

 

Well, the market did try, getting as high as 4034.02 last week, before capitulating.

So, not really very aggressive, as it was only R1 ratio it was dealing with.

Although, it is perhaps worth noting that it may have been just too early in the expiry for the market to deal with R1 ratio but, it could also have been, it just didn’t want to be in bullish territory above the zone.

Both are not good news for the bulls but, one at least, is not so bad as the other. As the market can always become just a bit more aggressive and committed and so therefore become accustomed to R1, but it is a lot harder to swing sentiment as a whole from bearish to bullish.

In the meantime, it seems happy enough to just languish in the Y ratio bandwidth below the zone.

We would be a lot happier had it tested R2 at 4055, and we will be a lot happier when it tests R1 at 3895, as in the absence of either it is just meandering really.

Compounding all this, is the fact that the FTSE is at the other end of the spectrum, having taken on, and beaten, DR ratio, on gone on to challenge B1.

These are very significant levels of ratio, that result in a huge number of futures selling courtesy of the dynamic delta. There is nothing wrong of course with a market that is happy to buy all these futures coming out onto the market. Our issue is that this seems peculiar to London, as the SPX is certainly not exhibiting the same bullish exuberance.

Generally, it is unlikely that both are right.

So, choose your horse and, for what it’s worth, we always go for the SPX in circumstances such as this. Even though the better trading opportunities are this side of the pond.

 

Range:            3895  to  4005           

Activity:          Very poor

Type:              Bearish

 

www.hedgeratioanalysis.com

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November 28th, 2022 by Richard

7550 now a huge ratio level for the FTSE, if it can break free from its zone.

 

Nb. Our comment from 11/21/22

What we didn’t know when we last commentated on the final week of the November expiry, was the fact that the mighty Dec expiry’s zone was about to move up.

And as you can see in the above table, not insignificantly, as it jumped from 7200 all the way up to 7400.

Rather interestingly, in the Nov expiry, that zone actually ended up at 7250-7350, so both headed north during the week.

Anyway, we call it the “mighty” expiry as triple witching ones are by their very nature far far bigger than the intermediary ones. And, Dec, is the biggest of these big ones.

Already it is about four times the size of November’s, and that is also when one is at the start of being the near month whilst the others journey is over.

What this means in a practical sense, is all forms of activity get a sizeable boost.

Which also means, a lot of misinterpretation as to what is causing it. With a lot of the Fourth Estate very often ascribing it to various news items, rather than derivatives.

Of course, the fact the market is going to start in its zone is good but, once everybody gets acclimatised, R2 shouldn’t hold much fear.

In fact, triples routinely challenge the DR and B levels of ratio, especially the FTSE, by the end.

Enjoy the excitement, and make a note of where the ratio levels are.

 

Range:            7350  to  7340      

Activity:          Poor

Type:              Bearish

www.hedgeratioanalysis.com

 

 

Nb. Our comment on 11/28/22

Well, the first week was indeed all about the zone but, by the end, it also seems R2 did indeed hold no fear.

Although, we have to admit, judging by the lack of movement, the market evidently found it very difficult coping with the ratio. Bit like walking waist deep in mud, having to deal with the incessant futures selling, if you’re not really up for it.

On Monday last week the FTSE tested the bottom boundary (7350) of its zone with the intraday low of 7343.37.

The Tuesday saw it test the upper boundary (7450), firstly in the morning when it just touched it before getting repelled 30-points, and then again in the afternoon, with the intraday high of 7458.88.

The following two days saw it struggle in R2 above the zone but, on both days, it came down to test the upper boundary for support, or confirmation, with the intraday lows of 7452.84 and 7443.46 respectively.

The end result of all this, is that you now know that the market certainly now knows where the safety of its zone is.

Looking ahead, and there haven’t been many changes in the ratio, and most of those are below the zone, so the ratio situation is very plain to see this expiry.

7550 is now critical for the FTSE and, although it is only DR, it is that level for the market which is coming from R1.

That is a huge leap, 3 entire levels, and don’t forget these are exponential, so this should be like running into a wall, albeit a wall of futures selling.

Also, don’t forget, B1 is also lurking there at 7600, giving it some serious backup.

Looking a lot further ahead and, very much dependant on what happens in the next fortnight, we can see the zone being 7450-7550 in the final week.

 

Range:            7450  to  7540      

Activity:          Poor

Type:              On balance only just bullish

www.hedgeratioanalysis.com

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November 22nd, 2022 by Richard

After a near perfect Nov expiry, Dec will bring its own uniqueness to bear.

 

Nb. Our comment from the 11/16/22 (Not published)

 

Nb. Our comment for 11/22/22

 

Firstly, a final comment on the November expiry, where the settlement price was 3983.42.

So, just over 10-points below the zone. After traversing all the way back up from testing Y2 at 3695 (3698.15 3rd) it then tested Y2 at 4005 (4008.97 14th) and, albeit did go a bit higher, to then fall back to 3906.54 before recovering to end within spitting distance of its zone is more than good enough for us.

Hopefully December will be as perfect but, being the biggest of the big, this is a very tall order.

Especially when one considers that this expiry always contains Thanksgiving, and therefore also the usual rally.

Which we have already seen a chunk of we suspect.

More importantly, it means the first week is holiday restricted (actual closures but also absenteeism) so normality doesn’t really return until the last two weeks. Which means, this week and the next, anything can happen.

Apart from the fact it always takes a day or so for everyone to get up to speed with the sheer magnitude of increased activity courtesy of this being a triple and already being about three times the size of an intermediary expiry at the same stage.

Looking at the table above, no surprise the zone is where it is and, in fact, it probably moved before Novembers did.

Slight surprise there is a bandwidth of Y ratio. Although, only time will tell, how long this remains in place.

While it does, this does give the SPX a decent enough trading range to play around in. At least that is, until it decides to get a bit more aggressive.   

 

Range:            3895  to  4005           

Activity:          Poor

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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November 21st, 2022 by Richard

First look at the FTSE Dec expiry Hedge Ratio table for the biggest of the big ones.

 

Nb. Our comment from 11/14/22 (Not published)

Nb. Our comment on 11/21/22

What we didn’t know when we last commentated on the final week of the November expiry, was the fact that the mighty Dec expiry’s zone was about to move up.

And as you can see in the above table, not insignificantly, as it jumped from 7200 all the way up to 7400.

Rather interestingly, in the Nov expiry, that zone actually ended up at 7250-7350, so both headed north during the week.

Anyway, we call it the “mighty” expiry as triple witching ones are by their very nature far far bigger than the intermediary ones. And, Dec, is the biggest of these big ones.

Already it is about four times the size of November’s, and that is also when one is at the start of being the near month whilst the others journey is over.

What this means in a practical sense, is all forms of activity get a sizeable boost.

Which also means, a lot of misinterpretation as to what is causing it. With a lot of the Fourth Estate very often ascribing it to various news items, rather than derivatives.

Of course, the fact the market is going to start in its zone is good but, once everybody gets acclimatised, R2 shouldn’t hold much fear.

In fact, triples routinely challenge the DR and B levels of ratio, especially the FTSE, by the end.

Enjoy the excitement, and make a note of where the ratio levels are.

 

Range:            7350  to  7340      

Activity:          Poor

Type:              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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November 15th, 2022 by Richard

From Y2 at 3695 all the way up to the corresponding Y2 at 4005 so, all we need now, is a finish in its zone.

 

Nb. Our comment from the 11/08/22

 

It was good timing to publish our last comment on the 1st, as that very day this market ended at 3856.10, right on its zone.

This made the next day, Wednesday the 2nd, the critical day.

Basically, the market had to choose to stay above the zone and therefore remain in bullish territory, or to relinquish its newly established beachhead.

We hope it came across that we were a bit sceptical of the rise, and saw it mainly as the market drifting upwards in absence of any ratio “traction” whatsoever.

And in keeping with our belief that this expiry will be an exciting one, the following day, Thursday 3rd, saw this index capitulate all the way down to Y2 at 3695, with the intraday low of 3698.15.

We are not convinced that the intraday low of 3708.84 was another test of Y2, as being a bit far away from 3695, we think it was more like one of those cases where it was you first.

Of course, when nobody wants to be the first to test a level again, the market often reverses short of the actual level.

Decent recovery though, but now the market is stranded in no-man’s land.

Not a bad place to be, especially when there is no ratio to speak of.

However, you now know that the market knows that the zone is at 3850 and Y2 is at 3695.

We have no idea which way it will jump next, and there have been no meaningful ratio developments to indicate a preference either way, so we can’t really help at the moment.

What we can say though, is although activity has been truly abysmal so far this expiry, in the last couple of days we have seen a small tick up. Which, if this continues and grows, means the current fence-sitting shouldn’t last much longer.

 

Range:            3695  to  3845           

Activity:          Poor

Type:              On balance only just bullish

www.hedgeratioanalysis.com

 

Nb. Our comment for 11/15/22

 

It didn’t take long from our last comment before the market knew which way it wanted to “jump”.

Where the ratio is concerned, it can only offer clues as to which way and even then, nothing is guaranteed.

What the ratio does tell you, is that a) a big move is very likely, and b) the potential, or extent, of that move.

We often think that people now want to be spoon fed with everything as, to us at least, this knowledge seems inadequate nowadays.

Anyway, in our last comment we covered the bounce up off Y2 at 3695, the intraday and expiry low being 3698.15 on the 3rd November.

Last Friday and this Monday, the 11th and 14th respectively, it was the turn of the corresponding Y2 ratio, at 4005.

Those two days saw intraday highs of 4001.48 and 4008.97.

As we said on twitter, although 4005 is still Y2 today, it is so by the narrowest of margins, and anyway, another test would be strike 3.

So, from our viewpoint, we have got the expiry low, and pretty much nailed the high (although being on strike 3 and with the rollover tomorrow we would say our job was done on Friday 11th). And that makes a nice run of 310-points between 3695 and 4005, or 8.4% and, equally importantly, in just one expiry.

Getting back to the present, for us to claim a perfect expiry, all we need now is for it to either rollover or expire in its zone.

The trouble is, in this final week, this is a very fluid situation.

And partly why we took pains to point out the 4005 was on strike 3, is that we also suspect the zone will end up at 3995-4005.

So, a bit of overshoot is highly likely but, at the end of the day…or expiry if you like…we are more than happy with what the ratios have achieved in this expiry already.

 

Range:            3855  to  4005           

Activity:          Very poor

Type:              Bearish

www.hedgeratioanalysis.com

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November 14th, 2022 by Richard

As the FTSE enters the Nov rollover and expiry it's going to be all about the zone.

 

Nb. Our comment from 11/07/22

As we said, a lot of ground to cover.

Made even more by the fact that R1 reverted back to where it was the week before. Well, not exactly, as back then it was at 7350, whereas today it is 7300.

We say “today” but, we have no way of knowing now when it did actually change, although we are certain that it hasn’t just moved.

So, that huge Y ratio bandwidth had re-established itself sometime last week.

That means the big move we saw on Friday took the market up to test R2 at 7350 with the intraday high of 7376.23.

It also means, that having closed above 7300, it is now inside the R1 bandwidth.

Which is very aggressive for the FTSE, and only today will we be able to tell how comfortable it really is having to cope with this amount of dynamic delta.

Since it broke free of its zone traversing the Y ratio bandwidth was always likely. In fact, it would have been more of a surprise had it not done so.

We have to give the market a bit of leeway, especially the FTSE, as on Friday it was the turn of another of the heavily weighted sectors. In fact, it was two of them together, namely the miners and banks.

However, Monday should bring some reality back to the market. By reality what we actually mean is futures selling courtesy of the dynamic delta created by R1 and, should it venture higher, R2 as well.

Now, the bulls may well be happy enough to absorb all these futures, we simply just don’t know. However, there has been nothing we have seen that makes us believe there is any great bullish sentiment. Especially as all the big moves so far this expiry has been down to specific stocks, firstly Shell and now HSBC and Rio’s, which is why we are sceptical and for the moment at least, put our faith in the dynamic delta.

 

Range:            6950  to  7050      

Activity:          Good

Type:              Neutral

www.hedgeratioanalysis.com

 

Nb. Our comment on 11/07/22

What we should have mentioned in our comment last week, was the distinct possibility of the zone moving up to where it is today.

Therefore. we must not fail to mention this time, that there is so little ratio immediately above the current zone, that it was a close call as to whether we actually made the zone 7150 all the way up to 7350 rather than the 100-points it is in the table above.

What is more, is that 7300-7400 is also making a play.

And, we must point out, that the ratios are calculated entirely on activity. So, no business means no change. Therefore, big changes mean a lot of activity.

Interestingly, on the week, the FTSE has actually lost ground. Remarkable when one considers the SPX has actually put on 220-points (5.83%) and the DAX is up 765-points (5.68%).

Don’t know about the DAX anymore as we no longer calculate the ratios for it but, in respect of the SPX, they have just travelled from Y2 at 3695 all the way to their corresponding Y2 at 4005 (not all of it in last week mind).

Basically, both the FTSE and the SPX have travelled across their respective Y ratio bandwidths, it’s just that in the case of the FTSE they covered theirs sooner and spent the last week banging their head on the R ratios.

Concentrating on the FTSE, the zone is going to be key this week. Not just because of its rather liquid state, but because we are now into the rollover and expiry already.

And, next up is the mighty Dec expiry, the biggest of the big.

Obviously, it all depends on your risk appetite, but with the market at 7318 and R1 at 7350, in the final week, and the zone currently southwards, we are far more bearish than bullish. And, don’t forget, there is effectively no ratio at all between 7150 and 7350.

 

Range:            7150  to  7350      

Activity:          Good

Type:              On balance only just bearish

www.hedgeratioanalysis.com

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November 8th, 2022 by Richard

The SPX proved rather sensitive by bouncing off just Y2 Ratio.

 

Nb. Our comment from the 11/01/22

 

The excitement factor has certainly been high so far, especially considering that from the settlement price in October to the end of the first week in November the SPX gained an incredible 245-points, or 6.70%. That is in just a week, to spell it out.

Interestingly, where the ratio is concerned, this is actually quite mundane…as it hasn’t even got close to testing Y2 yet.

The only thing the market has done is move up through the Y1 ratio bandwidth.

So, it may seem exciting, but the reality is that this is exactly what one should have been expecting.

And the only significant change in the ratios has been the move up in the zone.

This has taken it to 3845-3855 and actually happened last Friday 28th Oct.

Therefore, Thursday’s price action was all about the old zone and Fridays about the new one, but water under the bridge now.

The main point is that the market is now back above their zone, and so by definition, back into bullish territory.

Which is not something we have seen for a while.

Now, what would be interesting is if the zone moved back up to 4000. And, if it did do so, in front of or in reaction to the market.

We still feel that there is plenty of life left in this market and, although the ratios are rising below the zone, there is still ample room down there.

In fact, the overall Y ratio is still 460-points, which is down from the 510 it was, but this remains scarily wide.

The big takeaway from all this, is don’t get fooled into thinking that this recent rise means anything but the fact that there was no ratio there to provide even the smallest bit of traction to give the bulls any concern at all.

This, of course, works both ways, and worth noting activity for the last 5 days has been abysmal.

 

Range:            3855  to  4005           

Activity:          Very poor

Type:              Bullish

www.hedgeratioanalysis.com

 

Nb. Our comment for 11/08/22

 

It was good timing to publish our last comment on the 1st, as that very day this market ended at 3856.10, right on its zone.

This made the next day, Wednesday the 2nd, the critical day.

Basically, the market had to choose to stay above the zone and therefore remain in bullish territory, or to relinquish its newly established beachhead.

We hope it came across that we were a bit sceptical of the rise, and saw it mainly as the market drifting upwards in absence of any ratio “traction” whatsoever.

And in keeping with our belief that this expiry will be an exciting one, the following day, Thursday 3rd, saw this index capitulate all the way down to Y2 at 3695, with the intraday low of 3698.15.

We are not convinced that the intraday low of 3708.84 was another test of Y2, as being a bit far away from 3695, we think it was more like one of those cases where it was you first.

Of course, when nobody wants to be the first to test a level again, the market often reverses short of the actual level.

Decent recovery though, but now the market is stranded in no-man’s land.

Not a bad place to be, especially when there is no ratio to speak of.

However, you now know that the market knows that the zone is at 3850 and Y2 is at 3695.

We have no idea which way it will jump next, and there have been no meaningful ratio developments to indicate a preference either way, so we can’t really help at the moment.

What we can say though, is although activity has been truly abysmal so far this expiry, in the last couple of days we have seen a small tick up. Which, if this continues and grows, means the current fence-sitting shouldn’t last much longer.

 

Range:            3695  to  3845           

Activity:          Poor

Type:              On balance only just bullish

www.hedgeratioanalysis.com

 

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November 7th, 2022 by Richard

The FTSE powers up through its Y Ratio bandwidth, but now comes the real test.

 

Nb. Our comment from 10/31/22

Well, respect to the zone.

How it managed to contain the FTSE for an entire week we have no idea, but that is exactly what it did with the slight exception of Thursday.

On Thursday Shell reported, which set the oil sector ablaze with them alone finishing up 5.5%. This does highlight another of the oddities of this index, as it is populated by a few very heavily weighted sectors. The oil sector being one, and with the weighting attributed to the oil majors if they get some bullish wind in their sails, like Thursday, it is very difficult for any amount of dynamic delta to contain that.

Although, it is fascinating to watch.

And also, you do tend to get a large deviation in the fair value. That is the difference between the cash (the index itself) and the futures price. Which can make for some good trading opportunities, at least for those that like that type of scalping.

Getting back to the more mundane issues and, although activity has been high this was from a very low baseline, the huge amount of Y ratio remains.

Although, this overall bandwidth has shrunk from 500 to 300-points, this is still a lot of ground to cover, especially for the FTSE.

The zone may come to the rescue again, and it has been known to contain this index for three weeks at a time, but we can’t see it ourselves this time round.

Every day last week either the upper boundary, 7050, or the bottom, 6950, was tested.

So, the market definitely knows what is where in respect of the dynamic delta, and both are on strike three or more anyway.

On top of which the ratio on either side is just the absolute minimal Y1, so not really a huge hurdle, therefore best not to loosen that seatbelt just yet.

 

Range:            6950  to  7050      

Activity:          Good

Type:              Neutral

www.hedgeratioanalysis.com

 

Nb. Our comment on 11/07/22

 

As we said, a lot of ground to cover.

Made even more by the fact that R1 reverted back to where it was the week before. Well, not exactly, as back then it was at 7350, whereas today it is 7300.

We say “today” but, we have no way of knowing now when it did actually change, although we are certain that it hasn’t just moved.

So, that huge Y ratio bandwidth had re-established itself sometime last week.

That means the big move we saw on Friday took the market up to test R2 at 7350 with the intraday high of 7376.23.

It also means, that having closed above 7300, it is now inside the R1 bandwidth.

Which is very aggressive for the FTSE, and only today will we be able to tell how comfortable it really is having to cope with this amount of dynamic delta.

Since it broke free of its zone traversing the Y ratio bandwidth was always likely. In fact, it would have been more of a surprise had it not done so.

We have to give the market a bit of leeway, especially the FTSE, as on Friday it was the turn of another of the heavily weighted sectors. In fact, it was two of them together, namely the miners and banks.

However, Monday should bring some reality back to the market. By reality what we actually mean is futures selling courtesy of the dynamic delta created by R1 and, should it venture higher, R2 as well.

Now, the bulls may well be happy enough to absorb all these futures, we simply just don’t know. However, there has been nothing we have seen that makes us believe there is any great bullish sentiment. Especially as all the big moves so far this expiry has been down to specific stocks, firstly Shell and now HSBC and Rio’s, which is why we are sceptical and for the moment at least, put our faith in the dynamic delta.

 

Range:            6950  to  7050      

Activity:          Good

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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