Nb. Our comment from the 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 thought 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
Activity: Good
Type: Neutral
Nb. Our comment on 11/01/21
Well, if the first week was all about R1 holding the line at 7200, the second week was all about the other end of the bandwidth.
This meant we did get our test of R2 at 7250, in fact it was the very day we published, being Monday 25th October with the intraday high of 7247.53 before closing 25-points below. Actually, there were two tests that day, several hours apart which made for a very plain chart highlighting the effects of the dynamic delta there.
As one can see in the table above, R2 above the zone has gone, now being part of the R1 ratio bandwidth. The question is when? As on the Tuesday and Wednesday last week the intraday highs were 7281.17 and 7280.45 respectively, both being tantalisingly close to the next level, R3 at 7300. Therefore, we suspect that this change happened then, if not on the Tuesday, then the breach that day probably precipitated the change by the Wednesday.
Either way, hitting R3 is a very serious number of futures selling as our grading of the hedge ratios depicting the dynamic delta are exponential, so going from R1 to R3 is not just a linear experience, but more like a doubling.
This is a shame, as it is plain to see that the FTSE wants to go better, it just can’t seem to get past all those futures coming out onto the market.
Making this all seem so much worse, is the fact the other indices, especially the SPX, are also happily making significant new all-time-highs as they are just fighting the Y ratios, while the FTSE languishes.
In fact, the opening price of the FTSE on the first day of this expiry was 7234.03, meaning in the two intervening weeks the market has only moved 3-points.
In conclusion, our view hasn’t changed as we still see this index eventually beat a retreat back to its zone, the only question is when.
If similar to the last expiry, soon would be best, then it can spend two weeks excitably pinging around in there, before cutting loose for the final week.
Range: (7150) 7200 to 7250
Activity: Poor
Type: Bullish
