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 lower, barring failure of 55.97s as resistance. This expectation did play out as a sell-side breakdown developed early in the week, driving price lower to 52.13s into Monday’s auction. Buy excess developed there, halting the sell-side sequence as price discovery higher developed to 54.37s into Wednesday’s trade, testing the breakdown area. Sell excess developed there, driving price lower through Friday’s close to 50.97s, near Sharedata’s average weekly range low target ahead of Friday close, settling at 51.56s.
26-31 January 2020
This week’s auction saw a sell-side breakdown through last week’s low, 53.85s, as buyers trapped, 53.70s, during Sunday’s Globex re-open. Price discovery lower developed, achieving a stopping point, 52.13s, into the Monday’s auction. Sellers trapped there, halting the sell-side sequence. Price discovery higher ensued to 53.91s into Tuesday’s trade before buying interest emerged, 53.40s, into Tuesday’s NY close.
Minor price discovery higher developed early in Wednesday’s trade, achieving the weekly stopping point high, 54.37s, at/near the sell-side breakdown area, 53.85s-54.10s. Sell excess developed there, halting the buy-side sequence through the EIA release (+3.5mil vs. +400k expected). Price discovery lower developed to 52.79s before selling interest emerged, 53.26s, into Wednesday’s NY close. Wednesday’s late sellers held the auction, driving price lower to 51.65s into Thursday’s NY close. Price discovery higher ensued early in Friday’s trade to 53.37s near Wednesday’s late supply. Low volume selling emerged there, driving price lower before buyers trapped, 52.68s, into Friday’s NY open. Price discovery lower continued, achieving the weekly stopping point low, 50.97s, ahead of Friday’s close, settling at 51.56s.
This week’s primary expectation was for price discovery lower, barring failure of 55.97s as resistance. This probability path did play out as a sell-side breakdown below last week’s support developed. Price discovery lower developed to 50.97s at/near the average weekly range low target, 50.48s. This week’s rotation (340 ticks) traded slightly below the average weekly range expectancy (370 ticks).
Looking ahead, response to this week’s support area, 50.97s-51.50s, will be key. Large selling emerged, 51.51s/51.41s, 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 22% from the January high. The narrative now shifts to global doom and gloom due to coronavirus as the market trades into Fall 2019’s demand cluster, 55s-51s. Buy-side failure to drive price higher from this week’s support area will target key demand cluster below, 46.50s-42.50s. Alternatively, sell-side failure to drive price lower from this key resistance will target key supply clusters overhead, 54.75s-55.95s/57.36s-59.77s, respectively. Near-term bias is sell-side, barring failure of 53.56s as resistance. That said, the sell-side sequence from 65.50s is stretched as price trades into multi-year demand, suggesting caution regarding further meaningful downside potential. 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 (+175k contracts), a meaningful decrease from last week as MM seems to be in a near-term cycle of net long reduction. MM long:short ratio, MM net long as % of open interest, and MM net long posture are all mid-range within the current balance. 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, and the market subsequently has traded to major structural support.
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.