In this article, we examine the significant weekly order flow and market structure developments driving WTI's 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 stopping point high development and long liquidation. This expectation played out following an early week retracement rally to 64.75s, where selling interest ultimately drove price aggressively lower to 60.95s in Thursday's auction. Buying interest halted the sell-side sequence there before a retracement rally developed ahead of Friday's close to 62.52s, settling at 61.94s.
Sharedata Futures, Inc.
26 April-03 May 2019
This week's auction saw minor pullback early in Monday's trade to 62.76s, within last week's key demand cluster. Sellers trapped there as buy excess formed, driving price higher into Tuesday's auction. Price discovery higher developed Tuesday, achieving the weekly stopping point high, 64.75s. Sell excess developed there amidst the trapping of buyers. Price discovery lower ensued into Wednesday's auction through the EIA release (+9.9mil v +1.4mil exp), achieving a stopping point, 62.77s, again within key demand. Minor buy excess developed there as sellers trapped, developing balance, 62.77s-63.68s, into Thursday's auction.
Rotation lower developed early in Thursday's trade as selling interest emerged, 62.60s/62.44s, driving price lower through key demand in a sell-side breakdown attempt. Price discovery lower ensued during Thursday's trade, achieving the weekly stopping point low, 60.95s, where sellers trapped, halting the sell-side sequence. Price discovery higher ensued into Friday's trade, achieving a stopping point, 62.52s, ahead of Friday's close, settling at 61.94s.
As noted last week, this week's primary expectation was for sell-side activity. This probability path played out following an early week retracement rally to 64.75s where selling interest emerged, driving price lower to 60.95s in Thursday's auction. This week's rotation slightly exceeded the average weekly range expectancy (380ticks).
Looking ahead, this week's sell-side continuation is consistent within the context of a stopping point high and subsequent corrective phase. Focus into next week on response to key demand, 61.40s-60.95s, within the context of the corrective phase from the high. Buy-side failure to drive price higher from this demand will target key demand clusters below, 60.40s-59.75s/59s-58.20s, respectively. Alternatively, sell-side failure to drive price lower from this key demand will target key supply overhead, 63.75s-64.75s/65.50s-66.50s, respectively. As noted in recent weeks, the market has auctioned toward larger key supply overhead following an approximately 57% buy-side phase from December 2018. Given this week's stopping point high development and subsequent liquidation, the primary expectation, near-term (2-4 weeks), based on market structure remains sell-side.
It is worth noting that despite the approximately 57% price rally from December lows, market leverage (Open Interest) potentially has bottomed. Interestingly, MM Long posture has seen an upside break of trend in the last two months or so of data amidst continued relative concentration of long posture amidst the MM participants (MM Long: Short Ratio= 11:1). 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 warrant caution on the buy-side at these price levels. Given this week's action, it is reasonable to infer that a structural stopping point high has developed.
Sharedata Futures, Inc.
It is also worth noting that the MM net long length in gasoline has reached bullish extreme posture (MM Long: Short Ratio= 27:1). Buy-side herding is developing in both WTI and a key refined product, gasoline. Another qualitative data point warranting caution on the buy-side at these levels. While media punditry banged the drum recently about $3 gasoline, the market generated data told a different story.
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.