Nb. Our comment from the 11/22/22
Firstly, a final comment on the November expiry, where the settlement price was 3983.42.
So, just over 10-points below the zone. After traversing all the way back up from testing Y2 at 3695 (3698.15 3rd) it then tested Y2 at 4005 (4008.97 14th) and, albeit did go a bit higher, to then fall back to 3906.54 before recovering to end within spitting distance of its zone is more than good enough for us.
Hopefully December will be as perfect but, being the biggest of the big, this is a very tall order.
Especially when one considers that this expiry always contains Thanksgiving, and therefore also the usual rally.
Which we have already seen a chunk of we suspect.
More importantly, it means the first week is holiday restricted (actual closures but also absenteeism) so normality doesn’t really return until the last two weeks. Which means, this week and the next, anything can happen.
Apart from the fact it always takes a day or so for everyone to get up to speed with the sheer magnitude of increased activity courtesy of this being a triple and already being about three times the size of an intermediary expiry at the same stage.
Looking at the table above, no surprise the zone is where it is and, in fact, it probably moved before Novembers did.
Slight surprise there is a bandwidth of Y ratio. Although, only time will tell, how long this remains in place.
While it does, this does give the SPX a decent enough trading range to play around in. At least that is, until it decides to get a bit more aggressive.
Range: 3895 to 4005
Activity: Poor
Type: Neutral
www.hedgeratioanalysis.com
Nb. Our comment for 11/30/22
Well, the market did try, getting as high as 4034.02 last week, before capitulating.
So, not really very aggressive, as it was only R1 ratio it was dealing with.
Although, it is perhaps worth noting that it may have been just too early in the expiry for the market to deal with R1 ratio but, it could also have been, it just didn’t want to be in bullish territory above the zone.
Both are not good news for the bulls but, one at least, is not so bad as the other. As the market can always become just a bit more aggressive and committed and so therefore become accustomed to R1, but it is a lot harder to swing sentiment as a whole from bearish to bullish.
In the meantime, it seems happy enough to just languish in the Y ratio bandwidth below the zone.
We would be a lot happier had it tested R2 at 4055, and we will be a lot happier when it tests R1 at 3895, as in the absence of either it is just meandering really.
Compounding all this, is the fact that the FTSE is at the other end of the spectrum, having taken on, and beaten, DR ratio, on gone on to challenge B1.
These are very significant levels of ratio, that result in a huge number of futures selling courtesy of the dynamic delta. There is nothing wrong of course with a market that is happy to buy all these futures coming out onto the market. Our issue is that this seems peculiar to London, as the SPX is certainly not exhibiting the same bullish exuberance.
Generally, it is unlikely that both are right.
So, choose your horse and, for what it’s worth, we always go for the SPX in circumstances such as this. Even though the better trading opportunities are this side of the pond.
Range: 3895 to 4005
Activity: Very poor
Type: Bearish
www.hedgeratioanalysis.com
