Nb. Our comment for 12/06/22
We made the point in our last comment (30th Nov – please see below-) that in the absence of a meaningful test of a ratio/delta level the SPX was in essence just meandering.
Luckily, we didn’t have to wait very long, courtesy of the Fed mentioning it might ease the pace of rate hikes, the market leapt up to 4080 on the very day we published.
Obviously, the market got carried away with itself and, no surprise, having been so aimless for so long it was crying out to let off some steam.
The trouble with that was, for the next two days, Thursday and Friday, it was stuck in the R2 bandwidth not being able to make any progress in either direction.
We actually thought, that they had solved the problem on the Friday, what with that massive gap down at the open which took the market down to 4040.17, and below R2 at 4055.
Can’t explain why it finished back at where it started but, as the ratio/delta levels hadn’t changed, a repeat was always a distinct possibility.
Coincidence or not, we were also not surprised to see the market finish yesterday back within its zone when it did repeat this yesterday.
Our problem is, that it is a week early, as the rollover and expiry are not until next week.
In a perfect world, we would like to see this market test R1 at 3945, or even R2 at 3895, as don’t forget there is no minimal Y ratio above the zone, so the market is now well accustomed to R1.
Just to remind everyone, the perfect expiry is when the market test one level of ratio on one side of the zone, then goes on to test the same level on the other side before finishing in or around its zone. Although anywhere in the Y ratio for the SPX is more than acceptable.
Range: 3995 to 4005
Activity: Only just registered
Type: On balance not bearish
www.hedgeratioanalysis.com
Nb. Our comment from the 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
