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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 the selloff from key resistance in Tuesday, December 1, 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.
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 Weekly: Selling Activity Near Key Resistance Targeted Key Statistical Support Below
12/23/20 01:44:14 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 the selloff from key resistance in Tuesday, December 1, 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.
Position: N/A
| December 1, 2020: The structural framework provided in Sharedata's Energy Daily Dashboard for Tuesday 01 December's auction was for price discovery lower. Our daily dual probability path assigned the primary expectation for price discovery lower, noting statistical support targets were: 44.35s/44.02s/43.68s, respectively. Qualitatively, these levels had held as support 55%, 82%, and 95% of recent market auctions (respectively) based on the market generated data. This data provided a sell-side framework with a probable support "zone" between 44.35s-44.02s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery higher. Statistical resistance targets resided at: 46.33s/46.66s/47s, respectively, with a probable support "zone" between 46.33s-46.66s. Within the daily sell-side context, it was observable in the option data that the WTI contract held large open interest at the $45 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 lower from the $45 Option Wall in Tuesday's auction was additional evidence that dealers may add to the selloff by selling futures to offset short put exposure (referred to as gamma hedging), resulting in price discovery lower toward 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 toward Tuesday's 1SD Low target, 44.02s, developed in the NY auction before being halted. |
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| Figure 1. WTI Daily Dashboard 01 Dec 2020. |
| Graphic provided by: Sharedata Futures, Inc.. |
| |
| Heading into Tuesday's auction, selling interest developed near key resistance during the Globex auction driving price lower through the NY trade to 44.12s at/near Wed's 1SD High target (just below Wed's ADR Low target). Sellers trapped there amidst excess, halting the selloff. Balance then developed, 44.12s-44.90s, into Tuesday's NY Close. |
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| Figure 2. WTI Daily Dashboard 01 Dec 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). |
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| Figure 3. WTI Auction 01 Dec 2020. |
| Graphic provided by: NinjaTrader. |
| |
| In this week's analysis, the primary expectation was for price discovery lower. Following the sell response at key resistance, price discovery lower first developed toward the $45 Option Wall. While initially held by the buyside, ultimately selling interest emerged absorbing the buy volume and and the resting bid liquidity in the LOB, driving price lower. The selloff then continued through Tue's ADR Low target before halting just above the 1SD Low as sellers trapped amidst large bid liquidity and a buyside flip of the limit order book. A relief rally then ensued within balance phase into the NY close. |
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| Figure 4. TI Limit Order Book 01 Dec 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 through the $45 Option Wall toward the 1SD Low target ahead of 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. |
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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