Nb. Our comment from the 05/24/22
Well, we just have to start with how the May expiry ended, and if you remember the SPX had just bounced off R3 (3880) and had just got back into the Y ratio bandwidth. We then said 4200 looks like a “shoo-in” to be the next zone, but 4100 was also highly probable. So, to see this index close at 4088.85 on the Tuesday we thought it had done it.
Of course, it then went all wrong, and the peril of having so much Y ratio became apparent yet again.
In the end the zone didn’t move, but the R ratios continued to collapse, so much so, by Friday R1 was at 3870. Therefore, in the end, this index did expire in its Y ratios but, there is no denying it, that this was an expensive trip for derivatives.
Looking at June, on Monday, R1 was at 3995, so the fact that the SPX closed on the preceding Friday at 3901.36 meant this expiry opened in the R1 bandwidth.
And, with R2 at 3895 (down from 3945) meant this index was already knocking on this door from the very start.
Not a good baptism really, but one which meant we were not that unduly surprised by the market reaction yesterday.
The question is really what happens next?
The short answer is that this will depend on how, or if, the zone sorts itself out, as being at 4300 is too far above the horizon to have any purposeful influence.
It may sound bizarre, especially as Y2 is at 4095 and R1 3995, but we can see a seismic zone move to 4000, almost as if it is resetting itself.
A lot will depend on today, what and how much business is generated in particular, but this index needs something dramatic to happen. As, once done, then the ratios can start creating a more conventional distribution. Something desperately needed, as currently the overall Y ratio is a gargantuan 635-points (16%) so skittish doesn’t even begin to describe it.
Range: 3895 to 3995
Type: On balance only just bullish
Nb. Our comment for 06/01/22
Well, it certainly was dramatic and it certainly was a seismic move in the zone.
Had one realised what was going on, then last week was like reading a book.
The same day as our last note the market hit the intraday low of 3875.13, a deep incursion into R2.
This was evidently enough of a stimulus to the bulls, happy to piggyback on the futures buying dynamic delta unleashed, to force the zone into the seismic move we had mentioned, as when we crunched the numbers on Wednesday it had indeed moved to 3995-4005.
Therefore, Wednesday was all about the new zone but, the Thursday and Friday, were definitely all about the sudden freedom the market found itself courtesy of that now vast expanse of Y1 above said new zone.
Of course, we have seen the zone in the SPX make big moves before, but we can’t actually recall one of this magnitude before. Nor can we ever think of such a move being so necessary, as it really has “reset” this market for this expiry.
So, from starting off in bear territory below the zone, and testing R2 ratio, we now have the situation where it is happily back in bullish territory in acres of Y ratio.
Therefore, you would be forgiven for thinking that the hard work had now been done but, to us at least, now everything has been reset, the true nature of the market can begin to emerge.
It may well be, that the bulls have now gained sufficient superiority that, in hindsight, the hard work has indeed been done. However, now the market is above its zone the gravitational pull from it is now downwards, not upwards. Plus, there is a chance, that the zone could move back from whence it came.
So, still plenty of risks out there but, the next few days and how they evolve, should go a long way towards either cementing this sea change, or revealing it to be just what we said, a reset.
Nevertheless, playing the cards we now have in front of us, support is the zone and the R ratios immediately below that. Whereas resistance, in the form of R ratios, doesn’t appear until 4605. And, if it remains as aggressive on the upside, then R2 doesn’t appear until 4705. Which is a ridiculous amount of upside for a bull market, let alone the bear one we are meant to be in on a conventional definition, not ours (unless the zone does move back up of course), but even so, it is a lot.
Range: 4005 to 4605