SPX , NDX & DJX Ratio Table 12th Oct 2018
Memo to the next President: When you are in debt and need to borrow a lot more don’t piss off your Banker, and more importantly don’t start a trade war with them.
Having said that we would like to extend a sincere welcome back to normal markets.
Basically, the last couple of years have been in a vacuum of reality and under normal market conditions we would fully expect this, the SPX, or any other index to trade between the high R ratios.
Although, to be fair, we would not expect them to be so far apart, so what we have been seeing this year is a direct result of complacency borne of stale bulls.
Does make it exciting though, and it has certainly stimulated activity, and now we are back to a trader’s market the ratios are in the table above.
However, the dynamic delta produced is a direct consequence of activity, so in fast markets you will get rapidly changing ratios.
Nevertheless, it is going to be one humdinger of a rollover and expiry next week for sure.
Range: 2715 to 2745
In our opinion the NDX deserves exactly what it gets.
Sadly, however, no sign of any of the big players wading in this trip so they have come away unscathed.
But even under these conditions they continue to add strikes like they were going out of fashion, why defeats us as we can’t see anybody needing over 300 of them on an index that is just 7000-points, truly bizarre.
If they stimulated activity then fair enough, but as the ratios haven’t changed at all and they only go as high as R1 then the answer is clearly no they haven’t.
Perhaps it may be worth considering that the lack of activity in what can only be described as perfect markets for derivatives is because of all this….
Range: …. to 7175
Type: On balance bearish
Exactly what we said above in the SPX is even more pertinent here in the DJX, which actually rather neatly exemplifies perfectly what we are saying.
Essentially it is all Y ratio, and don’t forget the 300-point wide zone.
We first saw this wide zone used when the upper boundary was at 27000 (intraday high 26951) and the very next day the trading range was 357, but more importantly it closed below the bottom boundary.
The zone then reverted back to where it was, and now is, but stayed at 300-points wide, making the bottom boundary 26500.
The Friday last week the close was 26447 and on Monday 8th it was 26486, both below the bottom boundary and both warnings.
But by now it had fallen two zone widths, or 600-points, and significantly the first R ratio didn’t appear until 25400, and the last two days tell their own story.
The astute may have noticed yesterday, when R2 here was at 25100, the intraday low was 25125 before it rallied all the way up to almost a plus 100-points, before ending worse of course.
But by its very actions it shows the bulls were biting, and reacting to the dynamic delta, so it may not be as bad as it seems.
However, at the end of the day, we can’t do anything about how wide the Y ratio bandwidth is here, or anywhere for that matter, so just enjoy the ride.
Range: 24400 to 25200 or 25200 to 26500