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 price discovery lower within the context of an uncomplete corrective phase from 60.94s. This expectation played out, following a meaningful relief rally early week to 58.82s, near key supply where selling interest emerged in Wednesday's auction, driving price aggressively lower to 53.59s in Thursday's trade where buy excess formed, halting the sell-side sequence ahead of Friday's auction, settling at 55.29s.
28 July-02 August 2019
This week's auction saw buying interest, 56.22s/56.30s, in Monday's auction driving price higher from last week's settlement, achieving a stopping point, 57.56s, into Tuesday's trade. Selling interest emerged there as narrow balance developed, 57.55s-57.04s, during Tuesday's mid-auction. Buy-side continuation developed into Tuesday's NY close, driving price higher to 58.47s at/near key supply. Buying interest emerged, 57.99s, following Tuesday's NY close.
Price discovery higher developed early in Wednesday's trade, achieving the weekly stopping point high, 58.82s into the EIA release (-8.4mil v -2.5mil expected). Buyers trapped amidst structural sell excess, signaling a halting of the buy-side sequence (despite the "bullish" fundamental data). Price discovery lower developed through Wednesday's NY close, achieving a stopping point, 57.43s, in Wednesday night's Globex auction. Narrow balance developed, 57.43s-57.99s, into early Thursday's trade before selling interest emerged, 57.46s/57.20s, driving price aggressively lower through key support, achieving the weekly stopping point low, 53.59s. Buying interest emerged, 54s, amidst structural buy excess, 53.59s-54.14s, signaling halting of the sell-side sequence. Price discovery higher developed into Friday's auction to 56.04s at/near the sell-side breakdown area. Selling interest emerged there, developing balance, 56.04s-55.07s ahead of Friday's close, settling at 55.29s.
This week's primary expectation was for price discovery lower. This probability path played out after a rally phase to key supply within the context of an ongoing corrective phase from 60.94s. This week's rotation (523 ticks) traded just beyond the weekly 1st standard deviation range expectancy (517 ticks).
Looking ahead, response to this week's sell-side breakdown area, 56s-55.33s, will be key. It is likely the market is now developing the third wave of a three-wave correction. The question remains did this week's buy excess complete the corrective phase? Buy-side failure to drive price higher from this key resistance will target key demand clusters below, 54.50s-53.50s/52.50s-51.50s, respectively. Alternatively, sell-side failure to drive price lower from this key resistance will target key supply overhead, 58s-58.85s/60s-60.94s, respectively. The broader contextual question is whether the buy-side phase (June-July 2019) completed at 60.94s or will continue. Near-term bias (2-4 weeks) remains sell-side, with the expectation to test major demand below, 53s-51.50s, from June 2019.
It is worth noting that market posture warranted caution on the buy-side near the April 2019 high, 66.60s, as Managed Money (MM) Long posture peaked there. Since that high, MM short posture trended higher before reaching the near-term peak into early June where the price low was formed. This week's report reflects another increase in MM short posture (82k contracts) as the short posture trend higher continues. It generally requires a large quantity of MM short posture to form structural lows. The current posture remains below that, warranting caution for further price discovery lower.
Also noted recently, the MM net long length in gasoline reached bullish extreme posture. When looking at WTI, RBOB, and HO collectively, it was apparent that buy-side herding was developing in both WTI and a key refined product, gasoline, warranting caution on the buy-side near the April highs. While media punditry banged the drum about $100 oil and $3 gasoline, the market generated data told a different story. Gasoline has declined approximately 22% from 2.15, the April high, to June's low, 1.66s, before rallying back toward $2 into July in tandem with WTI. MM Net Long posture within the complex reflects a similar tendency to WTI, caution for further price discovery lower.
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.