WTI Weekly: Key Resistance Failed Early Before A Breakout Developed To Statistical Resistance

02/25/21 12:24:24 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 breakout through key resistance and subsequent rally on Monday, February 8, 2021. 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

February 8, 2021:

The primary expectation in Sharedata's Energy Daily Dashboard for Monday February 8, 2021 was for price discovery lower. Our daily dual probability path assigned the primary expectation for price discovery lower, noting statistical support targets were: 55.88s/55.60s/55.32s, respectively. Qualitatively, these levels had held as support 45%, 78%, and 100% of recent market auctions (respectively) based on the market generated data. This data provided a sell-side framework with a probable support "zone" between 55.88s-55.60s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery higher. Statistical resistance targets resided at: 57.83s/58.10s/58.38s, respectively, with a probable resistance "zone" between 57.83s-58.10s. 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. In this case, key resistance failed during Monday's Globex auction, driving price higher to the 1SD High target where buyers trapped amidst sell excess, halting the rally into the NY close.

Figure 1. WTI Daily Dashboard 8 Feb 2021.

Graphic provided by: Sharedata Futures, Inc..

Heading into Monday's auction, a buy excess formed early during the Globex auction as price discovery higher developed to 57.68s. Buyers trapped there, as balance developed, 57.68s-57.33s, into the NY auction. Buying interest emerged early in NY trade, driving price higher to 58.14s at/near Mon's 1SD High target. Buyers trapped there as sell excess formed, halting the rally into the NY Close.

Figure 2. WTI Daily Dashboard 5 Feb 2021.

Graphic provided by: Sharedata Futures, Inc..

The practice of analyzing market structure development 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 Auction 8 Feb 2021.

Graphic provided by: NinjaTrader.

In this week's analysis, the primary expectation was for price discovery lower. Following breakout through key resistance in the Globex auction (shifting the bias to buy-side), the LOB trend higher continued early in NY trade as buyers trapped, 57.95s, near Mon's ADR High target. A pullback developed to 57.65s-57.70s, where buying interest emerged amidst large bid liquidity in the LOB. A buy-side flip of the LOB developed before the resumption of the trend higher occurred. The rally continued to 58.14s at/near Mon's 1SD High target. Buyers trapped there as large offer liquidity in the LOB absorbed the demand, halting the rally ahead of the NY Close.

Figure 4. WTI Limit Order Book 8 Feb 2021.

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. Buyers trapped there amidst large offer liquidity, halting the rally 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.

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: Key Resistance Failed Early Before A Breakout Developed To Statistical Resistance

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