WTI Weekly: Key Supply Holds Before Sell-Side Breakdown Develops To 70.51s

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Includes: BNO, DBO, DNO, DTO, DWT, OIL, OILD, OILK, OILU, OILX, OLEM, OLO, SCO, SZO, UCO, USAI, USL, USO, USOD, USOI, USOU, UWT, WTID, WTIU, XLE
by: Sharedata Futures

Summary

Balance develops early week, 73.07s-75.28s, as self-similar selling emerged at last week’s resistance.

Sell-side breakdown from balance, price discovery lower to 70.51s.

Buying interest there halts the sell-side auction.

Last week’s failed buy-side breakout resulted ina new sell-side auction toward Sharedata’s average weekly range low target.

In this article, we examine the significant weekly order flow and market structure developments driving WTI price action.

07-12 October 2018:

As noted in last week’s WTI Weekly, the development of sell excess, 76.90s-76.46s, amidst a failed buy-side breakout in last week’s auction provided structural indication of a stopping point high development. Our expectation was for balance development within the context of structural risk to the downside given both market structure and leveraged capital posture. Balance development played out early week, 73.07s-75.28s, before selling interest emerged, driving price lower to 70.51s near Sharedata’s average weekly range low target. Buying interest emerged there, halting the sell-side auction, driving price higher to 72s, closing the week at 71.34s.

WTI Composite Dashboard 05Oct18

This week’s auction saw price discovery lower early week, achieving a stopping point, 73.07s. Buying interest emerged there as a buy excess developed, 73.07s-73.17s, driving price higher in rotational trade back into key supply overhead, 74.60s-74.95s. Buying interest emerged, 74.75s-74.80s, as a buy-side breakout attempt developed to 75.28s. Selling interest emerged there as a sell excess developed, 75.28s-75.15s, driving price back into prior balance. This development provided structural insight that key resistance was defended. Sell-side rotation subsequently ensued through balance during Wednesday’s auction. Initiative selling entered, 73.40s-73.15s, driving price lower out of balance in a sell-side breakdown. Price discovery lower developed through Thursday’s holiday-delayed EIA release (+5.9mil v +2.6mil expected), achieving the stopping point low, 70.51s, at/near Sharedata’s average weekly range low target. Buying interest emerged there following Thursday’s NY close, forming a buy excess, 70.51s-70.67s, halting the sell-side auction.

Price discovery higher developed following Thursday’s NY close, achieving a stopping point, 72.01s, into Friday’s London auction. Buyers trapped there amidst responsive selling, as rotational trade developed, 72.01s-71.03s. Initiative selling interest emerged there, driving price lower, achieving Friday’s stopping point low, 70.64s. Buying interest emerged there, halting the auction as buy excess formed, 70.64s-70.74s, driving price higher into Friday’s NY close, settling at 71.34s.

WTI Weekly 12Oct18 NinjaTrader

As noted, last week’s auction saw a sell excess develop, 76.90s-76.46s, halting the buy-side auction. Subsequently, the market traded lower toward the developing balance support, 73s, where selling interest emerged, driving price lower as a sell-side auction ensued to 70.51s. Buying interest emerged there, halting the sell-side auction and developing a key demand area, 70.51s-70.75s. The first weekly inference played out as the market traded toward Sharedata’s average weekly range low target.

Looking ahead, following this week’s sell-side auction to 70.51s, buying interest emerged there, forming a structural stopping point. While the failed buy-side breakout above prior key supply is structurally significant in the larger perspective (3-6 month), a key support has developed ahead of next week, barring new sell-side structural and order flow developments. This circumstance implies buy-side potential within the context of continuing balance development under the major stopping point high, 76.90s, into next week.

NinjaTrader

It is worth noting that based on the Commitment of Traders report, Open Interest (NYSE:OI) remained largely unchanged as the deleveraging within the WTI market continues. Additionally, the Managed Money (NYSE:MM) net long position which peaked in January 2018 at 495k contracts has currently declined to 281k contracts, the lowest MM net long posture since September 2017. MM short posture increased (-41k contracts), the largest MM short posture since June 2018. Importantly, the MM short posture trend remains key. Without increasing MM long posture and substantially higher MM short posture, it will be difficult for the market to trade beyond the key supply overhead, 76s-77s. Additionally, given the typical seasonal price weakness of WTI, asymmetry in risk would remain to the downside based on the market generated data. From a structural perspective, the buy-side failure at supply overhead, 76s-77s, in the last two weeks is likely a major structural resistance.

WTI Historical MM COT 12Oct18

The market structure, order flow, and leveraged capital posture provide the empirical evidence needed to observe where asymmetric opportunity resides.

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.