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 57.58s as support. This expectation did not play out, as buyers trapped in Sunday’s Globex auction amidst structural sell excess formation, halting the buy-side sequence at 59.39s. Price discovery lower developed in Monday’s trade, driving price lower to 55.41s, developing balance, 56.84s-55.39s, into Friday’s auction. A failed sell-side breakdown occurred in Friday’s trade to 54.75s, where buy excess developed, halting the sell-side sequence ahead of Friday’s auction, settling at 55.91s.
22-27 September 2019
This week’s auction saw a failed buy-side breakout in Sunday’s Globex trade, achieving the weekly stopping point high, 59.39s. Buyers trapped, 59.25s, as sell excess developed, halting the buy-side sequence. Price discovery lower developed in Monday’s auction, achieving a stopping point, 57.37s, where buy excess developed as key support was tested. Minor price discovery higher developed to 58.72s into Monday’s NY close where selling interest emerged. Monday’s late sellers held the auction, driving price lower in Tuesday’s trade as a sell-side breakdown developed into Tuesday’s NY close, continuing following the API inventory release.
Price discovery lower continued in Wednesday’s trade, achieving a stopping point, 55.55s, during the EIA release (+2.4mil vs. -250k expected). Balance development ensued into Thursday’s auction, 55.55s-56.85s, as the low was probed before buying interest emerged, 56.59s, into Thursday’s NY close. Thursday’s late buyers failed to hold the auction as a sell-side breakdown developed in Friday’s trade, achieving the weekly stopping point low, 54.75s. Structural buy excess developed, 54.75s-55.25s, halting the sell-side sequence and driving price higher to 56.76s ahead of Friday’s close, settling at 55.91s.
This week’s primary expectation was for price discovery higher barring failure of key support. This probability path did not play out as key support failed early in the week, resulting in price discovery lower to 54.75s where structural buy excess halted the sell-side sequence. This week’s rotation (464 ticks) was slightly above the average weekly range expectancy (427 ticks).
Looking ahead, response to this week’s structural buy excess, 55.25s-54.75s, will be key. Buy-side failure to drive price higher from this demand cluster will target key demand clusters below, 53.50s-52.85s/52s-50.50s, respectively. Alternatively, sell-side failure to drive price lower from this key supply cluster will target key supply clusters overhead, 58s-59s/61s-61.50s, 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 shifted sell-side, barring failure of 56.84s as resistance.
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 late July where the current price low was formed.
This week’s report reflects a minor increase in MM short posture (53k contracts) as the short posture trend lower has halted. Following the “Saudi Shock” of two weeks ago, there has been negligible movement in leveraged capital posture overall. It generally requires a large quantity of MM short posture to form structural lows. Despite that, MM net long posture is increasing modestly as Open Interest remains largely unchanged, implying a mixed leveraged capital picture. In all, MM posture is neither at bullish nor bearish extreme, implying no asymmetric opportunity is currently present.
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.