In this article, we examine the significant daily order flow and market structure driving WTI price action.
25 September 2018:
As noted in Monday’s WTI Daily, the highest probability path based on market structure for Tuesday’s auction was for buy-side continuation, provided the breakout area, 71.60s-71.80s, held as support. Our first daily inference (71.81s holding as support) did play out as buying interest emerged around 72s during the Globex auction and at 71.90s during the NY auction even though the buy-side phase was halted near Monday’s high, before closing at 72.28s.
Tuesday’s auction saw buying interest early in Globex, drive price higher to 72.66s into the London auction. Responsive selling entered, developing balance, 72.66s-72.22s into the NY auction. Initiative buying entered, 72.70s-72.75s, at Monday’s high driving price modestly higher in a buy-side breakout attempt, achieving the stopping point high, 72.78s. Responsive selling entered there amidst large offer liquidity (evident in the order flow and limit order book respectively) as the high was rejected, forming a structural sell excess, 72.78s-72.69s. This development provided structural indication of a halting of the buy-side auction. Constricted sell-side trade then ensued, driving price lower in pullback to 72.05s to test the Globex/NY lows. Initiative selling entered, 72.05s, driving price modestly lower in a sell-side breakdown attempt, achieving the stopping point low, 71.89s. Responsive buying entered there, rejecting the low and forming a buy excess, 71.89s-71.99s. Like the sell excess above, the buy excess at the low provided structural indication that the sell-side auction was halted. Rotation higher within the prior balance developed to 72.34s into the NY close, settling at 72.28s.
As noted Monday, the highest probability path for Tuesday’s auction based on market structure was for price discovery higher. Buying interest emerged early in Tuesday’s Globex auction driving price higher to test Monday’s high. New selling interest emerged there, halting the buy-side phase as the upside was truncated.
The market has two phases of development: imbalance (trend) and balance (consolidation). Looking ahead, the highest probability path based on market structure (sell excess within key supply) for Wednesday’s auction would be for balance development following the near-term buy-side phase from 68s. While a shakeout of weak long inventory is possible, the most prudent expectation would be for the development of a new high-volume area of trade (20-30k contracts) before a new directional phase can begin.
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 has seen continued trade into the major supply area with structural evidence of a sell-side response sufficient enough to halt the auction. The coming days and weeks are a critical juncture for WTI in the larger context.
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.