Nb. Our comment from the 05/11/22
It is certainly going to be a grandstand finish to this expiry, and derivatives have evidently got their work cut out for them.
A lot has gone on from our last comment but, since then, it has been all about the R ratios.
On Thursday 5th when R1 was at 4145, the market went as low as 4106.01 before finishing at 4146.87. This could have been a good sign, and on another day, it could well have been so, the bulls having fought back so hard to get the market back into the Y ratios.
The Friday saw a bad start but, again, the bulls fought back, getting the market as high as 4157.69 (nb. R1 still at 4145). Then it all went sour, with the market plummeting to R2 at 4070, with the intraday low of 4067.91.
The fact that it bounced off this level, but still closed south of R1 was a warning.
Therefore, the first two days of this week have all been about R2, which had now slipped to 3995. Monday’s intraday low was 3975.48 and the close was 3991.24. Very worrying for Tuesday. Which actually started well, but then went down to 3958.17, before rallying back above R2 for the close.
Classic bull vs bear stuff, each using the dynamic delta to advance their respective causes.
This now makes today rather critical, or should we say, holding above R2 rather critical for the bulls.
We do think there is at least one more day of R2 staying at 3995, but no denying the ratios are slipping below the zone.
Of course, we expect the zone to move down, and don’t lose sight of the fact it is the rollover and expiry next week. However, there is no front-runner at present.
We suspect, the outcome of today, and possibly tomorrow, will go a long way to defining where any likely expiry of this month will be.
We have to side with the bulls, simply because they are backed up by the R2 amount of dynamic delta futures buying but, we haven’t seen this index being so aggressive (either way) for a very long time, so our conviction level is not 100% even if the levels remain unchanged.
Range: 3995 to 4095
Nb. Our comment for 05/17/22
Please see above for what we wrote on the 11TH, bearing in mind it was before the market opened that day.
So, to carry straight on from above, on Wednesday 11th the market did try to rally, getting as high as 4049.05, before capitulating and finishing at 3935.18.
This was a very important close, and one we had guessed the significance of above, as this left the market below R2 at 3995.
Therefore, the next line of support was R3 at 3880.
The intraday low (and so far, expiry low as well) on Thursday was 3858.87. Quite an overshoot, but under the circumstances understandable.
The main circumstance being the weakness in the ratios below the zone, itself in imminent threat of moving lower.
And, as one can see in the table above, the zone has indeed moved lower, as has R3, and considerably so.
In fact, all the ratios below the zone are considerably weaker. And, this has been a daily collapse, please remember you are just seeing a weekly snapshot.
So, in reality, it was by the skin of its teeth that R3 held out. This is good news if you are a bull, or own shares, not so much if you are a bear of course.
Is it a coincidence that Monday’s intraday low was 3983.99, which is where R1 is today, who knows? But what it does mean is that now this market is back into the Y ratio bandwidth.
And as we are now into the rollover and expiry on Friday this could not be timed better.
Therefore, the really big question is where will the zone end up? The current “shoo-in” is 4195-4205 but, in our experience, when you get into the final few days and among the minimal Y ratio, nothing is impossible.
However, anywhere in Y1 would be our first hope. After that, practically speaking, 4095-4105 looks as good a bet as any. Although, had one asked this question last week, anywhere in the Y ratios would have been our answer whilst revealing our crossed fingers.
Range: 3985 to 4295
Type: On balance only just bearish