Nb. Our comment on 03/06/23
Well, the FTSE has gone from being very compliant to derivatives in the first week, to being weirdly over exuberant in week two.
Monday, for whatever reason, saw the FTSE get back over 7900 despite the presence of DR ratio there, and in the process undoing all the hard work from the first week.
The natural reaction came on Tuesday, with the market getting back below 7900, after yet another 6-hour epic battle with DR at 7900.
Then from Wednesday onwards London took on its own equity agenda, only returning to being recognisant of derivatives when it encountered DR once again, now resident at 7950.
We always say that the big expiries can happily take on far higher levels of ratio than the intermediaries but, even taking this into account, from day one of this expiry the FTSE has been relentlessly attacking DR, which is a bit odd to say the least.
We are now past the half way point of this expiry and the ratio table as one can see, has still got the zone all the way back at 7750, while the equity market is still persisting with taking on DR ratio.
At the end of the day the amount of dynamic delta futures selling proportionate to DR ratio is a lot for any market to absorb. Fantastic that there are so many willing buyers out there, and it has been known for triple witching expiries to even take on the B levels and, you know there is a but coming, but for the first one of the year and from day one, is a tad extreme.
We really don’t want to rain on the parade, but the market is evidently not quite brave enough to push past DR, so as long as it stays at 7950 then that is always going to be a hurdle. Then, even if it overcomes that, you have B1 at 8050. All the while, the gravitational pull of the zone 200-points below, with time running out, is only going to get stronger. Def not a market we would want to be long of, in a nutshell.
Range: 7900 to 7950
Activity: Very very poor
Type: On balance bearish
Nb. Our comment from 02/27/23
Hopefully, after reading our comment last week you would have been able to appreciate why the FTSE did what it did last week.
Obviously being in the DR ratio bandwidth was a difficult situation for it, as every which way it turned it was faced with some serious levels of dynamic delta futures selling.
Especially coming from an intermediary expiry, this would have been even harder to cope with.
Hence such a quiet Monday, the entire trading range on which was only just 24-points.
Tuesday saw it get a bit bolder, and also work out which way was the path of least pain.
Wednesday and Thursday were strike one and two respectively on DR at 7900, the intraday lows being 7879.03 and 7888.88.
Friday, or strike three, saw the break through.
This week, and as you can see in the ratio table, there have been some significant changes.
We would hope 7900 is now over and done with, as we can’t believe they don’t know by now that there is a lot of futures selling here.
Which should be made all the more apparent as the ratio bandwidth it is in now has slipped to Y2.
So, just like 7900 last week, we strongly suspect the battle this week will be with the upper boundary of its zone, 7800, and pretty much for the exact same reasons.
Of course, if it breaks into its zone, then 7700 would be the next target.
Range: 7800 to 7900
Type: On balance bearish