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by Taylor Ireland
In this article, we examine the order flow and limit order book data in the WTI futures market that provides insight into breakout and its subsequent failure in Thursday, May 7, 2020's auction. Market structure and order flow provide insight into the actual transactional activity of a dual-auction's price discovery process. Analysis of this data provides real-time insight into the actions of market participants, providing a dynamic dataset to inform one's risk management process.
Position: N/A
Taylor Ireland
Sharedata Futures, Inc. provides historical data mining and visualization for the benchmark NYMEX Energy Futures Markets.
Sharedata combines structural analysis of the market generated data, dynamic systems analysis, and Bayesian causal inference techniques favored by the scientific and intelligence communities to provide a robust framework for addressing the uncertainty and risk in energy pricing.
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ENERGY
WTI Crude Weekly: Statistical & Structural Resistance Confluence Held As An Early Rally Failed
08/06/20 04:17:01 PMby Taylor Ireland
In this article, we examine the order flow and limit order book data in the WTI futures market that provides insight into breakout and its subsequent failure in Thursday, May 7, 2020's auction. Market structure and order flow provide insight into the actual transactional activity of a dual-auction's price discovery process. Analysis of this data provides real-time insight into the actions of market participants, providing a dynamic dataset to inform one's risk management process.
Position: N/A
| May 7, 2020 The structural framework provided in Sharedata's Daily Dashboard for Thursday, May 7 was for price discovery higher. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical support targets were: 26.56s/28.41s/30.26s, respectively. Qualitatively, these levels had held as resistance 67%, 90%, and 95% of recent market auctions (respectively) based on the market generated data. This data provided a buy-side framework with a probable resistance "zone" between 26.56s-28.41s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery lower with a probable support "zone" between 21.42s-19.57s. Within the daily buy-side context, it was observable in the option data that the WTI contract held large open interest at the $25 strike. Option strikes with large open interest often function as meaningful support/resistance levels, and price is often pulled to these prices. In this case, failure of the market to hold above the $25 strike would likely result in accelerating selling back toward support below, $20. This type of daily framework, while useful, is more effective when using live order flow and structural analysis to confirm or negate the most probable daily inference. While key resistance failed and a rally to Thursday's ADR High target, 26.56s, developed, a sell response formed there, driving price aggressively lower as the breakout failed into the NY close. |
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| Figure 1. WTI Daily Dashboard May 7, 2020. |
| Graphic provided by: Sharedata Futures, Inc.. |
| |
| Heading into Thursday's auction, a breakout through key resistance developed during the London auction. Aggressive price discovery higher developed to 26.74s just beyond Thursday's Average Daily Range High Target early in NY trade. Sell excess formed there, halting the rally phase. Buyers then trapped as an aggressive selloff through the prior range developed as the breakout failed. Selling interest emerged, 24.20s, driving price lower to 23.37 into Thursday's NY close. |
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| Figure 2. WTI Daily Dashboard May 6, 2020. |
| Graphic provided by: Sharedata Futures, Inc.. |
| |
| The practice of analyzing market structure developments is best accomplished with the use of order flow and limit order book (LOB) analysis. In short, plotting the buy and sell transactions of significance (in this case volume equal to or greater than 150 contracts) as well as the resting limit bids and offers (equal to or greater than 75 contracts) allows us to see both the actions and intent of larger participants (who significantly affect price). |
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| Figure 3. WTI Auction May 7, 2020. |
| Graphic provided by: NinjaTrader. |
| |
| In this week's analysis, the primary expectation was for price discovery higher, and key resistance, 24.31s, failed in the Globex auction. Subsequently, price discovery higher continued toward Thursday's Average Daily Range High Target. Selling interest emerged near the large offer liquidity in the LOB, halting the rally. The selloff ensued as the breakout failed and the key option level, $25, held as resistance. The selloff developed to 23.37s into the NY close. |
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| Figure 4. WTI Limit Order Book May 14, 2020. |
| Graphic provided by: NinjaTrader. |
| |
| The daily framework identified statistical resistance targets and their qualitative potential to hold as resistance. The failure of key resistance early in the Globex auction resulted in a rally to the ADR High Target. Sell excess formed there, providing structural indication that the rally had been halted. Subsequently, an aggressive selloff developed as the breakout failed. This confluence of structural, statistical, and order flow data provided insight into the auction's outcome based not on lagging fundamental data or media hype but rather structural formation and transactional behavior of significant quantity that drives price discovery. |
Sharedata Futures, Inc. provides historical data mining and visualization for the benchmark NYMEX Energy Futures Markets.
Sharedata combines structural analysis of the market generated data, dynamic systems analysis, and Bayesian causal inference techniques favored by the scientific and intelligence communities to provide a robust framework for addressing the uncertainty and risk in energy pricing.
| Title: | Founder |
| Company: | Sharedata Futures, Inc. |
| Dallas, TX | |
| Website: | www.sdfanalytics.com |
| E-mail address: | support@sdfanalytics.com |
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