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DAY TRADING


WTI Weekly: Key Resistance Failed

04/02/20 03:56:39 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-side continuation for Tuesday, March 3, 2020's auction following an initial aggressive decline to 43.40s and subsequent rejection. 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

March 3, 2020:

The structural framework provided in Sharedata's Daily Dashboard for the March 3 auction was for price discovery higher. Our daily dual probability path assigned the primary expectation for price discovery higher, noting statistical resistance targets were: 47.94s/48.40s/48.87s, respectively. Qualitatively, these levels had held as resistance 60%, 70%, 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 47.94s-48.87s. As discussed frequently, markets are probabilistic not deterministic. Within this framework, the secondary expectation was for price discovery lower with a probable support "zone" between 45.56s-45.10s. 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. Despite the larger structural decline that was developing, market structure (Monday's Unsecured High, 47.30s) continued to support the most likely premise for buy-side continuation before resumption of the larger sell-side auction.

Figure 1. WTI Daily Dashboard 03Mar20
Graphic provided by: Sharedata Futures, Inc..
 
Heading into Tuesday's auction, a buy-side breakout developed through Monday's key support during early Globex trade. Price discovery higher developed toward 48.60s near Sharedata's 1st standard deviation high target. Selling interest emerged there amidst sell excess, halting the buy-side sequence. Balance then developed through the London auction between prior resistance (now support) and 48.66s near statistical resistance. Selling interest emerged there both in the London and NY auctions before price discovery lower ensued to 46.47s into Tuesday's NY close.

Figure 2. WTI Daily Dashboard 02Mar20
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 150 contracts) as well as the resting limit bids and offers (equal to or greater than 75 contracts) allows us to see both the actions and intent of larger participants (who significantly affect price).

In this week's analysis, although the primary expectation was for price discovery higher, the market provided order flow indication of the halting of that trend both in the London and NY auctions. The primary expectation for higher prices did unfold but was terminated at statistical resistance. Selling interest emerged there that ultimately drove price lower back through prior key resistance as the breakout failed into the NY close.

Figure 3. WTI Daily Auction 03Mar20
Graphic provided by: NinjaTrader.
 
The order flow and limit order book data confirmed the initial buy-side development of the directional context provided by the market structure. The daily framework identified statistical resistance targets and their qualitative potential to hold as resistance. The order flow and limit order book data then indicated the halting of the buy-side sequence before the larger sell-side trend resumed. 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.

Figure 4. WTI Limit Order Book 03Mar20
Graphic provided by: NinjaTrader.
 



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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