Nb. Our comment from the 05/26/20
With the potential to make big moves, the SPX has certainly had a quiet week.
Essentially ending up exactly where it started.
In the meantime, the ratios have developed, much more so than the “poor” activity level suggests.
In fact, it only missed being the next level up, “moderate” by a whisker, and as this is a triple, and it includes the Memorial Day holiday, this is actually a very acceptable level.
Also, don’t be fooled by the fact it is only the ratios above the zone that have had any meaningful moves.
As we said, there is no Y ratio below the zone, so already being in the R ratios, this means there is a lot further for these to climb to go up a level, especially as the ratios are exponential.
Whereas, above the zone, as R2 didn’t even start until it was 280-points above the zone, meant it is a lot easier for those to climb, and therefore move in towards the zone.
The fact that this index is clear all the way up to 3005 is very ironic to us, as those that remember the last months of 2019 and the first few of 2020 will know that we routinely said that this index could drop at least 8% in a blink of an eye.
Considering the all-time high was 3390, that puts an 8% drop in the region of 3100.
In fact, back in early March R1 below the zone actually kicked in at 3145.
So, here we are, an entire pandemic (almost) later, and an economy decimated, and the market is back to where it should have been, albeit without the hyperbole.
Sheer madness, but then again, it’s not doing anything wrong, this time at least, against the ratios.
Range: 2805 to 3005
Activity: Poor
Type: Neutral
Nb. Our comment for 05/28/20
It has most certainly been a very interesting battle the SPX has been having with R1 at 3005.
It’s not so much the fact this index has taken two days to get over it, and yesterday it wasn’t until 14:00 EST that it succumbed after an all-day prolonged assault, but rather the fact that this market is now confident enough to even take it on.
Ok, admittedly, it is only R1, so the dynamic delta futures selling is not really that much, but in the circumstances, even this small amount assumes a far greater significance.
Unlike the months preceding the correction, this time, the market is bizarrely doing nothing wrong.
That is unless it doesn’t take heed of this dynamic delta, and at the very least, retreat back to its zone.
Which, significantly, will very likely move to 2895-2905, so it’s not that big an ask.
But, if it continues to hammer away at the R ratios, ignoring the realities, then we are right back to where we were at the start of this year, namely, facing another rout. For further explanation please see any of our articles from Oct 2019 up to March 2020.
Again, we are totally nonplussed as to why the authorities in question seem to think this situation is acceptable, which to us, is even more bizarre than the markets themselves.
Please note R2 has slipped back to where it was, 3085, and hence our trading range, but please take note, where it came from, 3055, still represents a “step-up”.
Also, please note how little activity there is, and its nature, and we haven’t seen it all one-way for quite a while (no “on balance” description used).
Essentially this means, derivatives are not buying (in every sense) this move.
Range: 3005 to 3085
Activity: Extremely poor
Type: Bearish
