Nb. Our comment from the 10/04/21
And “happily languish” it was, as the FTSE stayed zone-bound practically all week.
The first four days were all about the upper boundary, and on Thursday so much so we actually checked to see if the zone had moved to 7050-7150, as this is still very much on the cards (please see our last note above).
It hasn’t, but the hedge ratio is so small we are seriously considering making the zone 7000-7150, and although we haven’t, it is perhaps worth thinking of it as such.
On Friday, it was all about the bottom boundary, where it has in fact dropped to Y1 from Y2, and had done so for that day as well.
But the market opened weak, again please ignore the “official” 7086.42, as it was almost 100-points below that…misleading or what, but as they say in system (aka algo) trading about data, “crap in crap out”, and the intraday low of 6989.64 was just after the open. The fact it was now contending with just Y1 meant the support the market received was all the more impressive, as it never looked back or even suggested it was going to test the bottom boundary at 7000 again.
Of course, the market could continue to “languish” in its zone, by which we mean 7000 up to 7150 but this would be a real waste of a great opportunity, especially as we are just at the half-way point of this expiry.
Naturally, we are referring to the fact that R1 above the zone still does not kick in until 7250, and as the market has already tested this ratio level below the zone it is only appropriate that it should test this corresponding ratio at the other end.
It is the easiest path to a new all-time high this market has had all year, so it would be almost criminal to waste it, but at the same time understandable as it got such a bloody nose trying this in the Sept expiry.
Of course, only time will tell, and October is always a strange month, but what a chance it has so it really would be a shame to waste it.
Range: 7000 to 7100 (7150)
Type: On balance bearish
Nb. Our comment on 10/11/21
Out of all the indices, the FTSE is always the most likely to lack motivation.
It was easily the last to register a new all-time high recently, and overall, its performance this year comes in last by a long way, the winner being twice as high and even the second to last outrunning the FTSE by over 5%.
Of course, there are many reasons for this, but to us this is simply a by-product of the hedge ratios, as the poor old FTSE has had them in its path all year, until now that is.
In contrast, the SPX has had very little ratio above it to hinder its path.
This is why it is so sad to see it languish in its zone, at the very time it has clear skies above, tragic even.
For those who have read our previous comments there can be no surprise to hear that the intraday low on Monday was 7002.72, then the bottom boundary tried to assist again on the Wednesday but ultimately failed, with the market then going on to test R1 at 6950 (low 6945.50) for about an hour and a half, before returning to its zone.
Normally the awakening of the bulls by this test, being bolstered and empowered by the dynamic delta inspired futures buying, is enough to give it sufficient momentum to power on up but, sadly here, the FTSE still couldn’t break through its zone’s upper boundary at 7100 (intraday highs Thu & Fri 7094.93 and 7109.34 respectively).
To be zone-bound for so long is ultimately frustrating, albeit rather lucrative for derivative sellers, so as we enter the rollover and expiry week this can easily boil over, which we have seen many times in the past in this very same scenario.
It is still just Y1 above the zone, although Y2 now kicks-in a bit earlier, the important R1 remains at 7250. So, the opportunity is still there, but unless the market starts to exhibit a lot more conviction, the derivative players would be more than happy to see it remain zone-bound for the next three days for sure.
Range: 7000 to 7100 (7150)
Type: On balance only just bearish