ES CONTEXT Update

As the bounce started, ES was undervalued compared to the CONTEXT model, allowing ES to move higher off the April 10th lows, I warned that this would not last, CONTEXT would flip and the model would be lower than ES, over the last 3 days we have seen that occur.

As you can see the model's difference continued to expand with the model lower than ES, with the recent downdraft ES is now slightly cheap compared to the model. This is another one of those ambiguities in which fair value has been reached in ES as the model rises while ES falls, the reason for the rise is most likely the EUR/USD intraday arbitrage in which EUR'USD is as mentioned, mildly supportive of upside, it means the dollar is not blocking the market form further upside on an intraday basis. Again, it is up to the arbitrage algo's whether they want to take advantage of that.

There's very little doubt in my mind that we are at a "close enough " level for this bounce and thus the reason I have started phasing in to equity shorts, rather than short term options trades.

One thing to keep in mind is if there is a SPY pin tomorrow ($140 being the optimum level, but really anything higher would knock out more of the numerous put contracts with large open interest), the market would do best to stage one last shakeout move, meaning a move down today would pull shorts in, if there were a significant move higher tomorrow on an options expiration pin, it would knock those shorts out as well.