In this article, we examine the significant daily order flow and market structure driving WTI price action.
04 October 2018:
As noted in Wednesday’s WTI Daily, the highest probability path based on market structure for Thursday’s auction was for challenge of the buy-side breakout area, 75.90s-75.60s, with the primary expectation that the breakout area would hold as support. Rotation to test the breakout area did occur as the buy-side failed there, and price discovery lower developed to 73.88s at/near the maximum daily statistical expectancy.
Thursday’s auction saw balance, 75.99s-76.47s, during Globex as two-sided trade developed near Wednesday’s settlement. Buyers trapped, 76.47s-76.38s, early in London before initiative selling interest emerged, 76s, ahead of the NY open, driving price through the Globex low in a sell-side breakdown attempt to 75.80s, in the NY open. A structural sell spike formed, 76.20s-75.80s.
Initiative selling entered, 76s-75.90s, off the NY open, driving price lower as the sell spike held as resistance. Price discovery lower developed, achieving a stopping point 75.28s. Low volume buying interest emerged, pausing the sell-side auction as balance developed, 75.28s-75.82s. Selling interest emerged, 75.65s, driving price back to test the stopping point. Initiative sell programs entered, 75.26s, driving price lower in sell-side continuation, achieving the stopping point low, 73.88s, at Sharedata’s 2nd standard deviation low target. Responsive buying interest emerged there as sellers trapped, and price discovery higher developed to 74.60s ahead of the NY close, settling at 74.33s.
As noted Wednesday, the highest probability path for Thursday’s auction based on market structure was for challenge of the buy-side breakout area, 75.90s-75.60s, with the expectation for that area to hold as support. The area was challenged as expected, but the buy-side failed to defend that area. This was observable within the structure (the development of the sell spike into the NY open) and sell-side order flow. The buy-side failure at key demand resulted in price discovery lower to 73.88s.
Looking ahead, the highest probability path based on market structure for Friday’s auction would be for price discovery higher following the pullback from 76.90s to 73.88s. This expectation is informed by the structural development of buy excess, 73.88s-74.14s, into the NY close.
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 buy-side failure at the buy-side breakout area, confirming the stopping point high, 76.90s, as resistance. The weekly close is now of focus as a potential sell excess has developed amidst trade back into the prior major supply area. As noted last week, 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.