Nb. Our comment from the 12/01/20
Just like clockwork we got our record high.
So, if it follows the usual playbook, rationality starts to return from today, it’s just a question of how quickly.
Currently, the market tends to bask in the new high, probably totally ignorant of why it actually happened, which tends to get blamed on record sales over the holiday period.
On which subject, activity has naturally been light over the last week, but we should now see it improve, and therefore some development in the ratios.
Although they look very static in the above table, there is a groundswell going on below the zone, it’s just as yet it hasn’t resulted in any move above a threshold.
Therefore, we fully expect to see the zone move up to 3495-3505, and before long.
So, it’s just a question of whether or not it fancies tracking any higher.
The first hurdle will be R2 at 3655, probably today, which will provide an enormous insight into the strength and depth of the bulls’ commitment.
Then there is a significant step-up at 3705, before it reaches R3.
It’s not unheard of for this index to just keep battering away at a retreating R ratio door, especially at this time of year.
But, should their commitment falter, it would be a wise man who appreciated one, where the zone is, and also where it may be, and, two, that the Y ratio bandwidth is still an absolutely massive 310-points wide.
It might also perhaps be worth noting where the FTSE is in relation to their ratios, as this can sometimes cross the pond.
The remainder of this week should offer up some clues, and we still have almost a full three weeks of this expiry to go.
Range: 3605 to 3655
Nb. Our comment for 12/08/20
It was fairly obvious from last Tuesday that the SPX was intent on just battering away at the R ratios door.
Which is not altogether surprising, as what with the vaccine, the election and various other snippets, not least the “Thanksgiving Effect”, the real surprise to everyone seems to be why it is finding it so hard to go better.
Of course, and just like the FTSE, those that know what level of ratio, and hence dynamic delta, also know what the index is having to contend with, and no matter how bullish everyone is, someone still has to mop up all those futures.
Nevertheless, it is doing a great job, easily evidenced by how far the R ratios are, and have, retreated.
Although, we should point out, that the step-up level we mentioned last week, has now become the new R2 level, which is kinda the point of mentioning it in the first place.
We have two big fears, and the first is the rather obvious stubbornness of the zone to move, even though it is still being flagged.
Secondly, and far more of a worry, is the distinct lack of movement in the ratios below the zone.
Naturally, these two are connected, but in whatever passes for normal these days, it is the rising Ratios below the zone that should create the pressure thereby allowing the market to rise.
So, rising ratios below, falling above is bullish.
One without the other, is not that normal, and strikes us as something more akin to blinkered self-conformation, especially as it has been one-way traffic throughout this expiry, so far at least.
However, like London and Brexit, here a stimulus package, or similar, just like the start of QE, can catapult fundamentals into the driving seat, demoting derivatives to just riding shotgun, which, in truth, doesn’t happen very often, but is a risk.
Range: 3655 to 3705