Nb. Our comment from the 10/18/21
And October certainly did “boil over” but as the market had been zone-bound for so long they certainly had the meat out of the sandwich.
And anyway, the EDSP of roughly where it closed was still in the Y ratios, and but 80-points above the top of its zone.
But at least it eventually made full use of all that Y ratio as it made a new all-time-high on Friday, but boy does it not like to make a meal out of it all.
Sadly, this door has now been firmly slammed shut in its face, as all but a little bit of Y ratio has disappeared above the zone.
Below it, it has gone altogether, which is a win for the bulls at least.
However, as a quick glance at the above table will tell you, the market is going to start the 5-week long November expiry already in R1 ratio, which no doubt will be a somewhat rude awakening.
But R2 is directly ahead, and then just 50-points above that R3 is lurking in ambush.
These are not impossible levels of hedge ratio, but when one considers that the market has been used to only seeing the level of futures selling generated by the minimal Y ratios, R2 and R3 are going to take some getting used to.
Also, please don’t forget that this is still an intermediary expiry, so sensitivity should also be heightened, although overall activity is very good considering.
The market might still be emboldened by Octobers bounce off R1, and the SPX may have some input here, but, for the moment at least, we can only see London skulking back to its zone.
Range: 7200 to 7250
Type: On balance only just bearish
Nb. Our comment on 10/25/21
We appreciate it must have been “a rude awakening” starting the Nov expiry off in R1 ratio, but we honestly didn’t think it would be that torpid.
Although we do apologise for not mentioning that this is a five-week expiry, and quite often the first “extra” week can be as dull as dishwater for this very reason.
However, there were two surprises last week, the first being that every day the market broke down below 7200, the bottom of our trading range, but recovered.
In fact, on Thursday it actually closed below it, so we though job done, but Friday had other ideas, and the market got dragged right back into the R1 arm-wrestle.
The second surprise, was with 7200 proving so resilient, the market didn’t once test R2 at 7250, which would be our expectation.
But we feel very confident that this won’t last, as activity has continued to be high, and overall is already almost double what we were seeing at this stage last trip.
Obviously, this is still nowhere near what we would see in a triple, but at least Nov will hold its head up in comparison to any other intermediary now, and still four-weeks to go.
The only change in the ratio table despite all this, is the introduction of R2 below the zone at 6950.
Looking ahead, we see no reason to change our view, being that the market should be looking at a return to its zone. And after five tests, we don’t think 7200 should provide much more support at all. Therefore, the only real question, for us at least, is whether or not we are going to see the market test R2 or even R3 first?
Range: (7150) 7200 to 7250