Nb. Our comment from the 01/26/22
They tried so very very hard in the January expiry to get it to settle in its zone, with the (in the end) valiant effort to get the market up to 4602.11. The fact that after so much effort they still couldn’t hold it there was the first clue there were stronger undertones at work. The fact that it settled at 4472.07 was a result therefore, as at least it was still in the Y ratios.
However, and also why we have included the ratio table for Feb on the 20th above, is that on Friday the intraday low was 4395.34, coincidentally R1.
The second warning perhaps? Either way the open on Monday was way below this, and the market even went below R2 (which was unchanged from the 20th) before it staged what was a truly spectacular recovery.
This meant that the close at 4410.13 was back above both R2 and R1, which could have easily been job done on one of the most amazing starts to an expiry recently.
Sadly, the ratios below the zone then collapsed on Tuesday and, although they are mostly unchanged today, this weakness was a new experience.
The market yesterday did go below R1 at 4345 (intraday low 4287.11) but didn’t get as far as R2 now at 4245, before recovering to close back above R1. Giving just a glimmer of hope that all hands were rushing to stabilise the ship.
This makes today critical as the ratios are still weak below the zone, which in itself could easily move down to 4495-4505, as it tries to re-establish normal sensitivity and therefore reaction to the ratios, and thereby dispense with any panic.
We have said for quite a while now that these are not risk-free markets, and Monday’s huge test of R2 should also be a lesson as, although it rebounded spectacularly, it could also have gone the other way it was such a close call. Especially as over a great many of the previous expiries this index has been sensitive to just Y2 ratio, so this could just also be a sea change in tolerance levels as well.
Range: 4345 to 4595
Nb. Our comment for 01/26/22
Well, they have certainly stabilised the ship, but whether the initial issue has been corrected we feel the jury is still out on that one.
As this index has plumbed the depths, well R2 to be precise, then it is no surprise at all that there has been a considerable change in the ratios.
Though the question is this; has the “norm” been reversed?
By this we mean the normality of the last couple of years where the ratios recede above a rising zone while the market just keeps knocking on the door until it relents.
The answer is that it did change, with the “very good” activity resulting in the ratios above the zone advancing while those below receded. And, although 4500 came within a whisker of being the new zone, we haven’t had a down move yet.
This is not to say this may not happen again but, at the moment at least, normal service has been resumed.
However, the huge changes in the ratios can be seen in the above table, where our old friend 4295 is now R1. Incidentally, both R2 and R3 have been lower, today has seen them recover slightly. Seemingly, the biggest changes have been saved for above the zone, where Y2 has gone altogether and R3 makes an appearance, which doesn’t happen often these days, especially in an intermediary expiry. But, both R1 and R2 have made considerable inroads, something we are just simply not used to these days.
Looking ahead, then 4495-4505 is still an important level, and therefore what the market does today may well decide whether or not it still has any designs on becoming the next zone, at least for the rest of this week that is.
Otherwise, this market has bounced of R2, and has now powered all the way back up through the minimal Y ratio, so no prizes there. And, as we have said so many times before, this is just how it is these days because of the amazingly wide Y ratio bandwidths.
Depending on what happens with 4500, this rally tells us very little, and it won’t until, or if, it reaches the current zone. So, enjoy the Y ratios volatility and potential whipsaw, but don’t fooled into believing it’s something it is not.
Range: 4295 to 4595