WTI Weekly: Market Data Signaled Rally Continuation To Statistical Resistance Was Likely

12/03/20 04:00:18 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 through key resistance on Wednesday, November 11, 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

November 11, 2020:

The structural framework provided in Sharedata's Energy Daily Dashboard for Wednesday 11 November's auction was for price discovery higher. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical resistance targets were: 42.45s/42.82s/43.19s, respectively. Qualitatively, these levels had held as resistance 59%, 86%, 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 42.45s-42.82s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery lower. Statistical support targets resided at: 40.27s/39.90s/39.53s, respectively, with a probable support "zone" between 40.27s-39.90s. 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 trading higher from the $40 Option Wall in Tuesday's auction was additional evidence that dealers may add to the rally by buying futures to offset short call exposure (referred to as gamma hedging), resulting in price discovery higher toward the key statistical resistance levels above. 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 failed early and a rally toward Wednesday's 1SD High target, 42.82s, developed in the NY auction before being halted.

Figure 1. WTI Daily Dashboard 11 Nov 2020.

Graphic provided by: Sharedata Futures, Inc..

Heading into Wednesday's auction, buying interest developed near key resistance during the Globex auction driving price higher through the London trade to 43.06s at/near Wed's 1SD High target ahead of the NY open. Sell excess formed there, halting the rally before selling interest emerged, driving price lower to 42.20s early in NY Trade. Buyers then trapped, before the pullback resumed, driving price lower to the breakout area/prior resistance into Wednesday's NY Close.

Figure 2. WTI Daily Dashboard 10 Nov 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 125 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 Daily Auction 11 Nov 2020.

Graphic provided by: NinjaTrader.

In this week's analysis, the primary expectation was for price discovery higher. Following the initial rally toward Wed's 1SD High Target, sell excess halted the rally as a pullback ensued. The uptick within the rally toward 42.65s (at/near Wed's ADR High target) ultimately saw buyers trap before the LOB flipped sell-side. The pullback then continued back toward the buyside breakout area/prior key resistance into the NY close.

Figure 4. WTI Limit Order Book 11 Nov 2020.

Graphic provided by: NinjaTrader.

The daily framework identified both statistical support and resistance targets and their qualitative potential to hold. Key resistance failed early in the Globex auction resulting in a rally toward the 1SD High target. Sell excess formed there, halting the rally before a pullback ensued back to test the breakout area 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 Data Signaled Rally Continuation To Statistical Resistance Was Likely

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