In this article, we examine the significant daily order flow and market structure driving WTI price action.
14 September 2018:
As noted in Thursday’s WTI Daily, expectation for Friday’s auction was for buying interest within prior key demand and balance development. A failed sell-side breakdown attempt developed early in NY from Globex balance, achieving the stopping point low, 67.94s, where buying interest and excess developed, halting the sell-side auction. Buy-side rotation developed to 69.91s near Sharedata’s average daily range high target where selling interest and excess developed as rotation back toward Thursday’s settlement developed into Friday’s close.
Friday’s auction saw Globex balance, 68.67s-69.14s, above Thursday’s settlement. Initiative selling entered early in NY, 68.66s, driving price lower in a sell-side breakdown attempt from balance. Price discovery lower developed, achieving the stopping point low, 67.94s, within the prior key demand cluster. Sellers trapped there amidst responsive buying as a buy excess formed, 67.94s-68.07s, evident in the market profile. This development was structural indication of a halting of the sell-side auction. Price discovery higher developed back above the sell-side breakdown area, 68.50s-68.60s. Market logic dictates that when a breakout from balance fails, probability is high for rotation toward the other end of balance and potential directional activity, in this case buy-side.
Rotation toward the Globex high ensued where initiative buying emerged, 69.10s-69.20s, driving price higher out of balance. Price discovery higher developed, achieving the stopping point high, 69.91s, where selling interest emerged, halting the buy-side auction and forming a sell excess, 69.91s-69.55s. Pullback developed through the London close to 68.65s ahead the NY close, settling at 68.99s.
Our first daily inference played out only after a failed sell-side breakdown within key demand and subsequent buy excess formation early in the NY auction. The market auctioned toward Sharedata’s average daily range high target where sell excess emerged. Both buy and sell excess developed at the auction’s extremes, indicating capping of the auction on both sides by the higher time-frame participants.
Looking ahead, Friday’s auction contained both buy and sell excess at extremes. However, sellers trapped in size near 68s which would imply the buy excess is more meaningful than the sell excess from a structural perspective. The likeliest probability path for Monday’s auction would be for the buy excess to hold and price discovery higher to develop. Alternatively, new sell-side interest at this key support absorbing demand would imply price discovery potential lower to key support, 67s-66.86s.
As noted in last week’s WTI Weekly, seasonal price weakness in confluence with continued extreme bullish posture in the Managed Money suggests headwinds for WTI trading beyond the key supply cluster overhead (72s-75s). Near-term, the market structure (buy excess, 67.94s-68.06s amidst large trapped sellers) provides empirical evidence indicating the potential that the buy-side phase is the likeliest near-term probability path.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.