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 57.59s as resistance. This expectation did not play out as a failed buy-side breakout above last week’s key resistance developed to 59.77s in Monday’s holiday shortened auction. Sell excess developed there as buyers trapped, driving price lower through key supports (57.59s/57.36s) to 54.77s in Thursday’s trade, where buying interest emerged and balance developed ahead of Friday close, settling at 54.19s.
19-24 January 2020
This week’s auction saw a failed buy-side breakout above last week’s key resistance, 59.27s, during Sunday’s Globex re-open, achieving the weekly stopping point high, 59.77s. Sell excess developed, as buyers trapped, 59.35s, rejecting the high as price traded back into prior balance to 58.57s into Monday’s early close. Price discovery lower within the prior week’s balance continued in Tuesday’s trade, achieving a stopping point, 57.70s, where minor buy excess halted the sell-side sequence. Price discovery higher ensued to 58.79s into Tuesday’s NY close. Minor sell excess developed there before balance developed, 58.78s-57.71s, into Wednesday’s auction.
A sell-side breakdown developed through key support, 57.36s, in Wednesday’s NY auction, driving price lower to 56.54s before buying interest emerged, 56.92s, into Wednesday’s NY close. Wednesday’s late buyers failed to hold the auction as price discovery lower continued into Thursday’s trade, as buying interest emerged, 55.06s, before achieving a stopping point, 54.76s, near the average weekly range low target, 54.91s, through the EIA release (-400k vs. -1 million expected). Price discovery higher developed to 55.95s into Friday’s London auction. Sell excess developed there before price discovery lower resumed, challenging Thursday’s key support and achieving the weekly stopping point low, 54.37s, ahead of Friday’s close, settling at 54.19s.
This week’s primary expectation was for price discovery higher barring failure of 57.59s as support. This probability path did not play out as a failed breakout developed early week to 59.77s. A structural sell excess emerged there as buyer trapped providing indication and warning of the end of the near-term buy-side sequence. Rotation lower then ensued to last week’s support before a sell-side breakdown drove price to 54.37s at/near the weekly 1st standard deviation low target, 54.47s. This week’s rotation (592 ticks) traded above the weekly 1st standard deviation range expectancy (511 ticks).
Looking ahead, response to this week’s key support area, 54.35s-53.85s, will be key. Large selling emerged, 55.06s/54.80s, late in the week, as the market seeks support in a process called price discovery. Following the Iran attack media hype, the market has corrected approximately 17% from the January high. The narrative now shifts to global doom and gloom due to Coronavirus as the market trades toward Fall 2019’s demand cluster, 55s-51s. Buy-side failure to drive price higher from this week’s support area will target key demand clusters below, 54s-52s/46.50s-42.50s, respectively. Alternatively, sell-side failure to drive price lower from this key resistance will target key supply clusters overhead, 57.36s-59.77s/62.11s-64.72s, respectively. Near-term bias is sell-side, barring failure of 55.97s as resistance. The broader contextual question is what the next directional phase will bring following the intermediate term balance, 65.65s-50.52s.
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. Similarly, in recent weeks, market posture reached similar levels to April 2019 as price traded toward 64s. This week’s report shows MM net long posture (+232k contracts), a minor increase from last week. MM long:short ratio, MM net long as % of open interest, and MM net long posture are all closer to levels seen at recent resistance areas. This development continues as WTI now trades into the beginning of the typically bullish season (January-May). This divergence implies a broader neutral posture as the buy-side once again failed near major structural resistance, 64s.
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.