WTI Weekly: The $65 Option Wall Served As Support Into Late November.

12/16/21 03:23:25 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 sell-off and subsequent rally at key support on Tuesday, November 30, 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

30 November 2021:

The primary expectation in Sharedata's Energy Daily Dashboard for Tuesday, November 30, 2021 was for price discovery higher. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical resistance targets were: 73.14s/74.48s/75.82s, respectively. Qualitatively, these levels had held as resistance 64%, 91%, 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 74.13s-74.65s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery lower. Statistical support targets were: 68.56s/67.22s/65.88s, respectively, with a probable support "zone" between 68.56s-65.88s. 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, daily key support failed in Tuesday's Globex auction, driving price lower to 64.44s near key support before a buy response and rally developed ahead of the NY close.

Figure 1. Energy Daily Dashboard 30 Nov 2021.

Graphic provided by: Sharedata Futures, Inc..

Heading into Tuesday's auction, minor price discovery higher developed early during the Globex auction toward 71s where buyers trapped. A breakdown of daily key support, 69.83s, developed, driving price aggressively lower to 66.51s near Tue's 1SD Low target. Buying interest emerged there amidst excess into the NY open. Buyers then trapped early in NY trade before price discovery lower resumed to 64.44s near the $65 Option Wall Support. Sellers trapped there amidst excess as a relief rally developed to 66.50s into the NY Close.

Figure 2. Energy Daily Dashboard 29 Nov 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 100 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 30 Nov 2021.

Graphic provided by: NinjaTrader.

In this week's analysis, the primary expectation was for price discovery higher. Following a breakdown of daily key support in Globex and trend lower, a relief rally early in NY trade saw buyers trap as a sellside flip of the LOB developed near key structural support. Selling interest then emerged, driving price lower through structural support toward 64.44s near the $65 Option Wall Support. Sellers trapped there as a buyside flip of the LOB occurred and short covering rally ensued to 66.60s into the NY Close.

Figure 4. WTI Limit Order Book 30 Nov 2021.

Graphic provided by: NinjaTrader.

The daily framework identified both statistical support and resistance targets and their qualitative potential to hold. Key support failed early as a selloff developed toward the $65 Option Wall Support (an option level of high open interest) through NY trade. The order flow and LOB indicated a likely stopping point there before the rally ensued. 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: The $65 Option Wall Served As Support Into Late November.

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