In this article, we examine the significant weekly order flow and market structure developments driving WTI price action.
As noted in last week’s WTI Weekly, the primary expectation for this week was for sell-side activity following last week’s aggressive long liquidation. This expectation did not play out as buying interest emerged in Monday’s auction near key resistance. Following the buying interest and balance development at key resistance into mid-week, a buy-side breakout developed, driving price higher, achieving the stopping point high, 58.95s, into early Friday’s auction. Selling interest emerged there, forming sell excess and driving price lower to 57.74s ahead of Friday’s close, settling at 58.43s.
10-15 March 2019
This week’s auction saw narrow, two-sided trade early week near last week’s key resistance, 57.19s. Buying interest emerged, 56.69s-57s, which drove price modestly higher into Tuesday’s auction, probing key resistance to 57.55s. Minor structural sell excess developed there as micro-balance developed, 57.55s-56.74s into early Wednesday. Buy-side activity began ahead of the EIA release (-3.8mil vs. +2.7mil expected) as buying interest emerged, 57.97s, driving price higher into Thursday’s auction.
Price discovery higher continued in Thursday’s trade, achieving a stopping point, 58.74s. Buyers trapped there, halting the buy-side sequence and developing balance, 58.74s-58.12s, into Thursday’s close. Buying interest emerged, 58.66s, late in Thursday’s Globex auction, driving price modestly higher into early Friday’s trade. The market achieved a stopping point high, 58.93s, where sell excess formed, 58.93s-58.70s, halting the buy-side sequence and driving price lower to 57.74s in retracement. Sellers trapped at Friday’s low, 57.79s-57.90s, as price discovery higher developed to 58.64s ahead of Friday’s close, settling at 58.43s.
As noted last week, this week’s primary expectation was for sell-side activity. This probability path did not play out as buying interest emerged early week. Balance developed thereafter at key resistance before a buy-side breakout and price discovery higher developed to 58.95s where sell excess formed halting the buy-side sequence. This week’s buy-side sequence was below the average weekly range expectancy (417 ticks).
Looking ahead, this week’s buy-side breakout resulted in price discovery higher before structural sell excess developed in Friday’s auction. This week’s auction saw both buy-side breakout above key resistance and pullback to and re-test of that area. Focus into next week centers upon response to the key supply cluster, 58.55s-58.95s. Buy-side failure at this cluster will target key demand clusters below, 57.50s-56.75s/54s-53s. Alternatively, sell-side failure at this cluster will target key supply overhead, 60.40s-61.30s/62.40s-64.15s. As noted in recent weeks, the market has auctioned toward larger key supply overhead following an approximately 38% buy-side phase from December 2018. Given the buy response of this week, the primary expectation, near-term (2-4 weeks), based on market structure shifts buy-side.
It is worth noting that despite the approximately 38% price rally from December lows, neither market leverage (Open Interest) or MM Long posture have materially increased amidst continued relative concentration of long posture amidst the MM participants. Further, MM short posture remains below levels that typically result in the development of structural low formation. While this data implies caution on the buy-side at these price levels, the trend of MM Short posture is declining since its January 2019 high near the price low.
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.