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 buy-side activity following last week's buy-side breakout from 62.80s-63s. This expectation did play out as buying interest emerged early week, driving price higher to 64.79s where minor sell excess developed in Tuesday's auction. Balance trade developed, 64.79s-63.31s, as an initial corrective phase gave way to balance development ahead of Friday's close, settling at 63.89s.
07-12 April 2019
This week's auction saw a buy-side breakout in Monday's trade as last week's key resistance failed. Price discovery higher continued into Tuesday's trade, achieving the weekly stopping point high, 64.79s. Minor sell excess developed there, driving price lower, achieving a stopping point, 63.68s. Buy excess developed there amidst buying interest, 63.85s, as balance trade ensued into Wednesday's auction. Rotation higher within the range continued into Wednesday's trade through the EIA release (+7mil v +2.2mil expected), achieving a stopping point, 64.70s, near key resistance into Wednesday's NY close.
The development of a lower high (64.79s/64.70s) late in Wednesday's trade resulted in price discovery lower into Thursday's auction as an initial corrective phase unfolded. A sell-side breakdown attempt developed at Wednesday's key support, driving price lower, achieving the weekly stopping point low, 63.31s, within the week's key demand cluster. Sellers trapped amidst buying interest, 63.50s-63.60s, before rotation higher ensued into Thursday's close. Aggressive rotation higher developed in Friday's London auction through the week's balance as a re-test of key supply developed, achieving a stopping point, 64.65s. Buyers trapped at key supply, driving price lower to 63.92s ahead of Friday's close, settling at 63.89s.
As noted last week, this week's primary expectation was for buy-side activity. This probability path did play out as buying interest emerged early week, driving price higher from last week's key support within the lower bound of major supply, 63.40s-76.90s. This week's rotation was below the average weekly range expectancy (398 ticks).
Looking ahead, this week's buy-side continuation developed into the lower bound of major structural supply, 63.40s-76.90s, as a potential stopping point high developed, 64.79s. Focus into next week centers upon response to this week's maturing, multi-day balance, 64.79s-63.31s. Buy-side failure to drive price higher from this balance will target key demand clusters below, 62.90s-61.80s/60.30s-58s, respectively. Alternatively, sell-side failure to drive price lower from this balance will target key supply overhead, 64.50s-65.75s/66.60s-68.15s, respectively. As noted in recent weeks, the market has auctioned toward larger key supply overhead following an approximately 53% buy-side phase from December 2018. Given this week's stopping point high development, the primary expectation, near-term (2-4 weeks), based on market structure now shifts sell-side.
It is worth noting that despite the approximately 52% price rally from December lows, market leverage (Open Interest) continues to decline. Interestingly, MM Long posture has seen an upside break of trend in the last several weeks' data amidst continued relative concentration of long posture amidst the MM participants. Further, MM short posture has migrated toward levels that typically result in the development of structural high formations. Declining overall open interest, increasing MM long posture, and declining MM short posture warrants caution on the buy-side at these price levels. However, until the MM Long and Short Trends reverse, the highest probability path remains for price discovery higher within the major supply area.
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.