WTI Weekly: Market Structure Signaled The Selloff To Statistical Support Was Halted

11/12/20 04:26:37 PM

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 the rally from key support on Thursday, October 15, 2020. 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.

Security: WTI
Position: N/A

October 15, 2020:

The structural framework provided in Sharedata's Daily Dashboard for Thursday, October 15 was for price discovery higher. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical resistance targets were: 42.13s/42.53s/42.93s, respectively. Qualitatively, these levels had held as resistance 66%, 87%, and 91% of recent market auctions (respectively) based on the market generated data. This data provided a buy-side framework with a probable resistance "zone" between 42.13s-42.53s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery lower. Statistical support targets resided at: 39.95s/39.55s/39.15s, respectively, with a probable support "zone" between 39.95s-39.55s. Within the daily buy-side context, it was observable in the option data that the WTI contract held large open interest at the $40 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, the market failing to trade higher through key resistance would likely result in price discovery lower toward the $40 strike and/or the key statistical support levels below. 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. Key resistance held early and a selloff to Thursday's 2SD Low target, 39.15s, developed in the NY auction before being halted.

Figure 1. WTI Daily Dashboard Oct 15, 2020.

Graphic provided by: Sharedata Futures, Inc..

Heading into Thursday's auction, selling interest developed near key resistance during the Globex auction before a selloff ensued through the London trade to Thu's 1SD Low target into the NY open. A minor probe lower developed to 39.22s early in NY trade at/near Thu's 2SD Low target. Sellers trapped as structural buy excess formed, halting the selloff. A rally phase then ensued back toward 41s near key resistance into Thursday's NY close.

Figure 2. WTI Daily Dashboard Oct 14, 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 allows us to see both the actions and intent of larger participants (who significantly affect price).

Figure 3. WTI Auction Oct 15, 2020.

Graphic provided by: NinjaTrader.

In this week's analysis, the primary expectation was for price discovery higher. The primary expectation failed as a selloff ensued to key structural support (near the $40 Option Wall). Sellers trapped there amidst a buy excess and large bid liquidity halting the selloff. The order book then flipped buyside as price auctioned higher as sellers trapped along the way. The market ultimately rallied back toward resistance where large offer liquidity halted the rally amidst low volume ahead of the NY close.

Figure 4. WTI Limit Order Book Oct 15, 2020.

Graphic provided by: NinjaTrader.

The daily framework identified both statistical support and resistance targets and their qualitative potential to hold. Key resistance held early in the Globex auction resulting in a selloff to the 2SD Low Target. Sellers trapped there amidst buy excess and large bid liquidity, halting the selloff. A relief rally then ensued into the NY close. 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.

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.

Title:	Founder
Company:	Sharedata Futures, Inc.
	Dallas, TX
Website:	www.sdfanalytics.com
E-mail address:	support@sdfanalytics.com
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WTI Weekly: Market Structure Signaled The Selloff To Statistical Support Was Halted

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