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WTI Weekly: Sellside Breakdown From D-Shape Cluster Developed Around 58s

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

Price discovery lower in Monday’s auction to 57.20s where buy excess halted the sell-side sequence.

Rotation higher to 58.79s through mid-week as balance developed through Thursday’s holiday-shortened auction.

Sell-side breakdown from balance in Friday’s trade and aggressive price discovery lower to 55.02s into week’s end.

This week’s auction saw continued development of a D-Shape cluster around 58s before an aggressive sell-side breakdown from this cluster developed into week’s end.

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 price discovery higher, barring failure of 57.37s as support. In a tale of two markets, this expectation did not play out as balance development continued, 57.20s-58.68s, forming a D-Shape cluster through Thursday’s holiday-shortened Globex auction. The D-Shape structure implied growing potential for directional activity, and this development unfolded in Friday’s trade as an aggressive sell-side breakdown developed to 55.02s ahead of Friday’s close, settling at 55.17s.

WTI Composite 22Nov19

24-29 November 2019

This week’s auction saw a sell-side breakdown through key support in Monday’s auction, achieving the weekly stopping point low, 57.21s. Structural buy excess developed there, driving price higher to 58.03s back above prior key support as the breakdown failed. Constricted price discovery higher developed into Tuesday’s auction to 58.56s before balance developed, 58.56s-57.82s, into Tuesday’s NY close.

Minor price discovery higher developed in Wednesday’s pre-holiday trade, achieving the weekly stopping point high, 58.68s. Minor sell excess developed there, before price discovery lower ensued to 57.51s through the EIA release (+1.5 million vs. -400k expected) where minor buy excess developed ahead of Wednesday’s NY close. Narrow balance developed, 57.64s-58.30s, through Thursday’s holiday-shortened Globex auction. Narrow balance continued early in Friday’s trade before a sell-side breakdown through key support drove price aggressively lower out of the ten-day D-Shape cluster. Price discovery lower continued, achieving the weekly stopping point low, 55.02s, ahead of Friday’s close, settling at 55.17s.

WTI Weekly 29Nov19

This week’s primary expectation was for price discovery higher. This probability path did not play out as balance continued amidst the maturing of a D-Shape cluster around 58s. A mature (or completed) D-Shape cluster always indicates potential for directional price activity. The directional activity occurred in Friday’s trade in the form of an aggressive sell-side auction, stealing the buy-side’s recent rally like a Christmas Grinch. This week’s rotation (366 ticks) traded below the average weekly range expectancy (411 ticks).

Looking ahead, response to the key demand cluster, 54.85s-55.50s, will be key. Buy excess developed late in Friday’s auction there, signaling a potential halting of the sell-side sequence. Sell-side failure to drive price lower from this key cluster will target key supply clusters overhead, 56.60s-56.75s/57.50s-58.60s, respectively. Alternatively, buy-side failure to drive price higher from this key cluster will target key demand clusters below, 54.40s-53.70s/51.75s-51s, 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 shifts sell-side, barring failure of 58.30s as resistance. 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. Due to the holiday-shortened week, this week’s report will be released on Monday, 2nd December. While no new data is available at the time of this writing, MM net long posture has increased from the October lows, typically seen near structural price 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 near levels where structural lows can develop. In all, MM posture is largely at levels where asymmetric opportunity on the buy-side develops. This development continues as WTI now trades within the typical seasonal low-price period (November-December).

WTI COT Weekly 22Nov19

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.