Nb. Our comment from the 07/26/22
Well, so far it has definitely been the case that this “expiry might actually turn out as one for the bulls”.
On Monday 18th, the first day of this expiry, the intraday low was 3818.63, another test of Y2 at 3820. Since then, and after we highlighted the stubbornness of the August zone, the market closed on Thursday 21st at 3998.95, right in it. Not bad that, 4.6% in as many days, and why we feel slightly vindicated about our comments.
The question is, what happens next?
It was all done rather hastily, and let’s face it, there is still 4-weeks to go in this expiry.
The intraday high on Friday was 4012.44, and we mention this as there is some doubt as whether or not this was a test of Y2. The reason is, that Y2 after the 19th had moved down to 4015 but, on the Friday, actually slipped back out to 4020, before moving back for today.
If it was a test, then that is the market having performed a complete Y1 bandwidth test.
The fact that it is now almost 100-points below this, suggests that it was in fact a test.
Generally, this means the market languishing for a while in this bandwidth.
However, if one compares where the ratios were on the 19th to where they are today, then it is obvious that they are strengthening on both sides of the zone.
If this continues at the same pace, then the zone will have to move, and downwards.
The prognosis is that everything now rests on how the ratios now evolve. If they continue to strengthen as they are above the zone, this will eventually force it down. Or will the ratios below the zone get enough support to keep it up.
Whichever side wins this new battle, we suspect will then dominate the rest of this expiry. But, don’t lose sight of the fact that the Y1 ratio bandwidth is now only 170-points, whereas the overall Y ratio bandwidth is still a massive 460-points. So, although these are a lot narrower than they have been, they are still plenty wide enough to satisfy most traders.
Range: 3845 to 3995
Type: On balance only just bearish
Nb. Our comment for 08/10/22
As we said, this one (expiry) may be one for the bulls, and so it has with a whopping rise of 7.96% so far.
In fact, if you go from the expiry high of 4186.62 it is actually 9.64%…and not many others saw this coming back on 18th July when this expiry started.
But, more importantly, is what might happen next?
The first aspect we have noted is that activity is going through a normal mid-expiry doldrum. While this is quite common, it does mean a degree of loss of control by the derivatives.
The second aspect to note is that, despite such a huge Y ratio bandwidth, the zone hasn’t moved, and more interestingly, not made any sign that it is likely to.
Thirdly, and this holds true in any expiry, don’t get fooled into believing any 4th Estate hyperbole about what is driving this market. There isn’t anything. It is simply because there is no ratio to speak of to get in the way. Although, almost 10% is a very long way we concede, so we understand why they have to try to label it, but it was nothing that wasn’t seen as possible meaning that the reason was also foreseeable.
Bearing these three aspects in mind, one might want to now consider that the rollover and expiry are next week.
Therefore, activity will pick up, so will volatility in all likelihood, and this will then determine if the zone remains steadfast, or looks likely to adapt.
In the meantime, it is worth remembering that this index is in Y2 ratio. Not difficult to handle, but with low activity, it would certainly make things uncomfortable.
Both Y2 and R1 have been higher, 4105 and 4255 respectively, so where they stand today is actually them strengthening, adding weight to the zone remaining where it is.
Bearing all this in mind, and as things stand, we have to start thinking about this index returning to its zone for next week.
The all-important question, is will the zone shift in the meantime?
Range: 4005 to 4230
Activity: Very poor