June 27, 2018

ESU18 SEP Contract

Is Risk-Off Priced In?

The market is a forward pricing mechanism and the window for price dislocations are very small.  The Footprint orderflow show that sellers have been in control since mid-June.  These are normal rotations in what appears to be a healthy, two-sided auction that is respecting Profile structure.

Constructive Bull Market

Note that as of Fridays session, longer term size buyers were aggressive on the offer and taking advantage of weaker longs that may have exited on the bearish newsflow that hit in mid-June.  As I called out in the trading room,  LT buyers are now stepping in to take the discount and attempt the drive higher into the lower composite value area starting at 2754.25.  That is the narrative that seems to be playing out.

Why Smart Money is Long

With the initial onset of China tariffs and the media focus on an all out trade war with China,  most of the smaller funds took risk-off  into end of month.  That newsflow appeared to have flushed out weak longs who appear to have taken profit after the intense scrutiny of trade between the world’s two largest economies. It appears the tipping point, at least in the short term, has been reached. The OPEC supply meetings were constructive and and CL drove higher due with Trump administration levying strict tariffs on any country that buys Iranian oil.  Production was low and so there is currently negative correlation with the ES.  This is definitely not a correlated market and so watching this week if correlation links positive and drives ES higher.

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