Macro Report/Insights: Positioning and Levels

Do levels even matter?

Hello everyone,

I would like to discuss three major topics in this article:

1. Positioning

2. Levels

3. My current observations in the futures markets

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Positioning:

Firstly, when we discuss positioning, there is never a clear signal. We all monitor COT data, but it really doesn't provide the edge mainstream narratives attribute to it. I assure you, if there is any statistical edge in the market, a fund somewhere is extracting alpha from it.

Secondly, there's a broad range of methods for quantifying positioning. For instance, if I'm observing the price action of oil, I'll need to monitor CL price action, CL implied volatility, CL COT positioning, XLE price action, XLE implied volatility, open interest levels on both CL and XLE, flows into USO, any premium or discounts to ETF products, and essentially any other edge I can find. There are numerous other factors you can observe as well, but let's keep it simple with the ones I've mentioned above.

The way I think about positioning is that you should aggregate a variety of signals to help you shape your thesis. This allows you to have a clearer understanding of any continuity or discontinuity your view has with the actual price action.

At the end of the day, price is the truth. Your P&L is denominated in price, NOT your fundamental view or positioning.