In this article, we examine the significant daily order flow and market structure driving WTI price action.
20 September 2018:
As noted in Wednesday’s WTI Daily, the highest probability path for Thursday’s auction based on market structure was for price discovery higher. Our first daily inference (70.82s failing as resistance) played out as Globex buying interest drove price higher through Wednesday’s Unsecured High, 70.82s, achieving the stopping point high, 71.35s. Selling interest emerged there during the London auction, halting the buy-side phase within prior key supply overhead. Price discovery lower then ensued through the NY auction as the market pulled back to 70.09s ahead of the NY close, settling at 70.32s.
Thursday’s auction saw buying interest following the Globex re-open as Wednesday’s unsecured high failed as resistance. Price discovery higher developed, achieving the stopping point high, 71.35s, into the London auction. Selling interest emerged there within the prior key supply area, 70.70s-71.40s, halting the auction. The selling interest combined with a minor sell excess, 71.35s-71.30s, provided the structural/order flow indications that the buy-side phase may have been terminated. Rotation lower ensued to 70.48s as balance developed into the NY open, 71.35s-70.48s.
Two-sided trade continued during early NY before initiative selling entered, 70.50s, driving price lower in a sell-side breakdown attempt to 70.26s. Buying interest emerged there, developing balance, 70.26s-70.70s, through the London close. A sell-side order flow sequence ensued toward the average daily range expectancy (70.12s/114 ticks) into the NY close forming a structural sell spike, 70.40s-70.10s, settling at 70.32s.
Analyzing markets within a Bayesian framework requires constantly updating inferences when new data of significance appears. This circumstance is an excellent case study in that process. Wednesday’s unsecured high implied potential for price discovery higher which did unfold into the London auction. There selling interest emerged within prior key supply, halting the buy-side auction. This was new market generated data that had to be acknowledged and understood as structurally significant. Market structure and order flow analysis provide a robust, dynamic analytical process for risk management.
As noted Wednesday, the highest probability path for Thursday’s auction was for price discovery higher barring the development of a structural sell excess. The market did trade higher early in Thursday’s auction into key supply where selling interest emerged, driving price lower toward key demand below, 70.35s-70.05s. The response in this area is of key focus into Friday’s auction. The structural sell spike developed at the end of the NY auction implies potential for price discovery lower. Looking ahead, the highest probability path based on market structure for Friday’s auction would be sell-side continuation, provided the sell spike holds as resistance. Failure of the sell-spike will indicate buy-side defense of prior key demand and imply price discovery potential higher.
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). Today’s development of selling interest within prior key supply area, 71-71.25s, again shows the sells-side commitment to defend the 71s-71.50s. The larger response within this area will determine price discovery higher to major supply overhead, 72s-75s, or rotation back to key demand below, 65.75s-64.40s.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.