Gap Higher Open Offers Asymmetric Potential In WTI Crude

01/13/22 04:18:25 PM

by Taylor Ireland

In this article, we examine the market structure of a Gap Higher Open in the WTI futures market that resulted in a continuation of the rally to 73.04s on Tuesday, December 7, 2021. Market structure provides insight into the market's dual-auction price discovery process. Analysis of this data provides a structural and statistical framework of these market structures, informing one's risk management process.

Security: WTI
Position: N/A

December 7, 2021:

The primary expectation in Sharedata's Energy Daily Dashboard for Tuesday 07 December 2021'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: 71.67s/72.97s/74.26s, respectively. Qualitatively, these levels had held as resistance 64%, 91%, 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 71.67s-74.26s. This type of daily framework, while useful, is more effective when used with structural analysis (in the form of the Market Profile) to confirm or negate the most probable daily inference. In this case, daily key support held before a breakout in Tuesday's Globex auction drove price higher through daily key resistance, 70.20s, to 71.92s near the ADR & AWR High targets as a Gap Higher Open formed into the NY open.

Energy Daily Dashboard 06Dec 2021

Graphic provided by: Sharedata Futures, Inc..

Gap Higher Opens are defined in this context as auctions which open beyond the prior day's NY high. In days before full electronic trading, this period would have been referred to as the "Pit Session". For simplicity, it can be thought of today as the period of the generally highest volume activity (the NY auction in the case of WTI Crude futures). From a structural perspective, Gaps indicate an imbalance in market positioning and bias. When statistical analysis is done of WTI Gap Higher Opens, the data reveals important insights. Based on a dataset going back to Q2 2013, it can be observed that in 291 instances of Gap Higher Opens in WTI Crude, the market has closed higher from that NY open 88% of the time.

Market Profile Dashboard- Gap Higher Opens

Graphic provided by: Sharedata Futures, Inc..

Further, when the Gap Higher Opens held, the average NY auction range amplitude is 121 ticks. These data points provide several key insights:

1) Statistically, there is asymmetric potential for higher prices (within the intraday context) in the event of a Gap Higher Open in WTI Crude. This indicates that despite significantly higher prices in the near-term, there is no statistical advantage to trading against those higher prices, barring an offsetting structural signal.
2) The average range the NY auction after such structures is 121 ticks; a satisfactory range potential from which to seek profit.

Market Profile Dashboard- Gap Higher Range Amplitude

Graphic provided by: Sharedata Futures, Inc..

Following the Globex breakout above Monday's NY high, the market traded higher to 71.92s where some selling interest emerged before the Gap Higher formed into the NY open. Buying interest emerged early in NY trade amidst a structural buy excess, 70.89s-71.40s. This was real-time structural and order flow data to confirm the Gap Higher Open. Price discovery higher then continued to 73.04s near Tue's 1SD High target before buyers trapped amidst sell excess, halting the rally ahead of the NY close. The NY auction traded a range of 215 ticks (nearly double the 121-tick average).

WTI Auction 07Dec 2021

Graphic provided by: NinjaTrader.

In this analysis, the significance of the Gap Higher Open was identified. It was shown that Gap Higher Opens in WTI Crude provide both asymmetric potential for trend continuation and actionable range amplitude. These structural formations can be confirmed or negated with the use of real-time analysis of market structure via the Market Profile and order flow data. 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, the 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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Gap Higher Open Offers Asymmetric Potential In WTI Crude

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