Nov

2022

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

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.

Posted in Uncategorized Tagged with: FTSE, Markets

Nov

08

2022

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 28^th 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 1^st, as that very day this market ended at 3856.10, right on its zone.

This made the next day, Wednesday the 2^nd, 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 3^rd, 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

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.

Posted in Uncategorized Tagged with: Markets, spx

Nov

07

2022

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.