Nb. Our comment from the 05/05/21
A rather fortuitous day to publish our next note on the SPX for two reasons.
Firstly, yesterday we saw one of those skittish days we have been blethering about for so long, meaning that readers should have no excuse for not expecting it.
Secondly, we have at last seen a rise in the zone.
And not before time, so it’s not so much the rise but rather the length of time it has taken to achieve it that is the salient point here.
In fact, we would fully expect it to move up again, this time to 4170-4180, and in truth, we think it would be very surprising if even this was it for this expiry.
However, there are two points to note here, and the first is that the zone is still playing catch-up with the market, so we haven’t seen a zone forcing the pace for a very long time, meaning it is almost by default than design that these moves are happening.
Secondly, the retreat in the ratios above the zone are symptomatic of a final week of an expiry’s life, not one half way through.
Although this weakness has been going on for so long, it really has been from the very outset of this trip, which is even more damming.
Overall, the issue still remains that despite these movements, the Y1 ratio bandwidth is still a very impressive 265-points wide.
And the overall Y ratio bandwidth has actually increased by 25-points, to an eye-watering 510-points, or 12.25%.
We are not saying it’s going to happen, but yesterday’s 64.07-point move (1.53%) could just be a warm-up, or worse, a warning.
Whether you are a bull or a bear, just remember you are skating on very thin ice, and like all ice rinks, it only takes a very little impetus to propel things a very long way indeed, and the potential for whipsaw is ever present.
Either way, with two and a half weeks to go, and no meaningful ratio to speak of, this index has carte blanche to do whatever it likes.
Range: 4105 to 4255
Nb. Our comment for 05/12/21
For those of you that follow us on Twitter then they knew that the zone changed to 4170-4180 the day it moved, on the 6th May the very next day after our previous note.
This was a significant, and although flagged, even we were a bit surprised at how quickly it came about.
Not because of the depth of the ratios, but because it had taken the previous move so long in a similar situation.
However, that made two moves in two days, a good sign that interest and involvement were picking up.
Also, before this expiry is out, we would fully expect one more move, very probably to 4195-4205, but we still have a week and a half to go, so no rush.
But this is not the real reason why we are leading with the zone, but rather because the market now finds itself below it, and therefore in bearish territory.
This is only day 1 that it has been below its zone, so today is really very critical, as it generally tends to decide whether the bulls or bears are now in charge.
So, 4170-4180 is now a very significant level.
We are not great believers in coincidence, so it is also worth pointing out that the FTSE is also in a similar situation with regard to its zone.
Obviously, our ratio table above gives you the levels, so it really is a case now of who is, or wants to be in charge, as the overall bandwidths have shrunk a bit, with Y1 now standing at 260-points, and the overall Y ratio bandwidth “only” 435-points.
Therefore, if the bulls remain absent, then there is still a huge potential move.
Either way, it looks like this market is gearing up for a volatile end to this expiry, which just hasn’t got off the ground, and still remains one of the biggest Y ratio bandwidths we have ever seen.
And next week is the rollover and expiry, and that is into the second “biggie” of the year, the triple witching June expiry, so we could be in for a hot summer after all.
Range: 3995 to 4170
Type: On balance bearish