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WTI Weekly: Price Discovery Lower To 53.71s Late Into The Week Before Aggressive Price Discovery Higher To 56.33s

by: Sharedata Futures
Sharedata Futures
Research analyst, commodities, ETF investing

Selling interest in Monday’s auction, price discovery lower through mid-week to 53.71s.

Buying interest emerged there in Thursday’s auction, price discovery higher to 56.33s.

This week’s auction saw a corrective phase to 53.71s where buying interest emerged, driving price higher back to key supply into week’s end.

As noted in last week’s WTI Weekly, the primary expectation for this week was for price discovery higher, barring failure of 55.41s as support. This expectation did not play out as selling interest emerged early week, driving price lower through key support to 53.71s. Buying interest emerged there in Thursday’s trade before aggressive price discovery higher developed to 56.33s, ahead of Friday’s close, settling at 56.12s.

WTI Composite 25Oct19

27 October-01 November 2019

This week’s auction saw narrow balance in Monday’s auction at key supply where buyers trapped, 56.78s, as structural sell excess formed. Price discovery lower developed to 55.58s ahead of Monday’s NY close as selling interest emerged, 55.92s-55.83s. Monday’s late sellers held the auction as price discovery lower continued in Tuesday’s trade through key support, 55.41s, achieving a stopping point, 54.61s. Minor buy excess developed there as sellers trapped, driving price higher to 55.91s near the sell-side breakdown point into Tuesday’s NY close.

Price discovery lower developed from Tuesday’s NY close in Wednesday’s auction, as buyers trapped, 55.31s, through the EIA release (+5.7mil vs. +400k exp) probing Tuesday’s low to 54.42s into Wednesday’s NY close. Retracement higher ensued early in Thursday’s trade to 55.59s before price discovery lower resumed to Wednesday’s low. Selling interest emerged there, 54.44s, driving price lower in sell-side continuation, achieving the weekly stopping point low, 53.71s. Buying interest emerged there amidst buy excess, halting the sell-side sequence. Price discovery higher developed in Friday’s trade to 54.44s where buying interest emerged, driving price higher to 56.33s, ahead of Friday’s close, settling at 56.12s.

WTI Weekly 01Nov19

This week’s primary expectation was for price discovery higher. This probability path did not play out as selling interest drove price lower through mid-week to 53.71s before buying interest halted the sell-sequence, driving price higher to 56.33s into week’s end. This week’s rotation (321 ticks) traded below the average weekly range expectancy (451 ticks).

Looking ahead, response to key supply, 56.25s-56.92s, will be key. Sell-side failure to drive price lower from this key cluster will target key supply clusters overhead, 57.60s-59.50s/61.50s-62.60s, respectively. Alternatively, buy-side failure to drive price higher from this key cluster will target key demand clusters below, 54s-53.70s/53.25s-52.85s, respectively. The broader contextual question is what the next directional phase will bring following the current developing balance, 63.38s-50.52s. Near-term bias is buy-side, barring failure of 54.70s as support. The larger context remains neutral between 63.38s-50.56s.

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. MM short posture then trended higher before reaching the near-term peak into late July where the current price low was formed. This week’s report reflects increase in MM short posture (112k contracts) as the MM short posture trend higher stalls. MM net long posture has declined substantially since mid-September toward levels typically seen near structural lows. While it generally requires a larger quantity of MM short posture to form structural lows, MM long:short ratio, MM net long as % of open interest, and MM net long posture are all at levels where structural lows can develop. In all, MM posture is largely nearing levels where asymmetric opportunity on the buy-side develops. This development occurs as WTI approaches a typical seasonal low period (November-December).

WTI COT Weekly 01Nov19

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.