In this article, we examine the significant daily order flow and market structure driving WTI price action.
01 October 2018:
As noted in Friday’s WTI Daily, the highest probability path based on market structure for Monday’s auction was for price discovery higher to challenge the key supply overhead. Both buy excess and buying interest emerged early in NY resulting in a buy-side breakout from key balance and price discovery higher to 75.36s, within major supply overhead.
Monday’s auction saw balance development, 73.65s-73.25s, during Globex above Friday’s NY close. Initiative selling interest emerged early in NY, 73.25s, driving price lower in a sell-side breakdown attempt. Price discovery lower developed, achieving the stopping point low, 72.95s. Sellers trapped, 73.05s-72.95s, as buying interest absorbed the supply, rejecting the low as buy excess developed, 72.95s-73.10s. This development was structural indication of failure of the sell-side breakdown from balance, implying potential price discovery higher.
Rotation higher back through prior balance ensued before initiative buying emerged, 73.65s, driving price higher out of balance as price discovery developed to 74.89s at/near Sharedata’s 1st standard deviation high target. Responsive selling entered there into the London close, halting the buy-side auction. Two-sided trade developed before initiative buying entered, 74.95s, driving price higher in buy-side continuation, achieving the stopping point high, 75.32s, at Sharedata’s 2nd standard deviation high target into the NY close, settling at 75.30s. The market developed a structural unsecured high into the NY close.
As noted Friday, the highest probability path for Monday’s auction based on market structure was for price discovery higher. The sell-side failure and buy excess formation early in Monday’s NY auction provided structural indication for potential higher prices. The buy-side phase drove price into the major supply cluster, challenging the key supply. The highest probability path unfolded as inferred on Friday.
Looking ahead, the highest probability path based on market structure for Tuesday’s auction would be repair of Monday’s unsecured high, 72.32s. This unsecured high implies potential for price discovery higher. This may develop as a sell excess (rejection) above Monday’s high or buy-side continuation.
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 auction saw price discovery higher testing major supply area. As noted last week, the coming days and weeks are a critical juncture for WTI in the larger context as the response to this cluster is key.
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.