Explain This Price/Volume Action - CL

[Redneck]

Can somebody who knows a little about how markets work explain why there are such large volume spikes in CL today with each new high

Mac

First – change the color of your volume bars to one color – the red/ green thing has a tendency to sway one’s bias / close one’s mind off

What you’re seeing is a controlled distribution of a position and/or a controlled establishment of a short position

Controlled in the sense price is being supported – driven up – then sold off / shorted into (causing price to swing down - but not too far down - yet)

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Folks say they don’t know if the high volume is buying or selling – one way to tell.., is ask yourself;

With the high volume – if it was indeed buying – then why didn’t price continue going up…

Simple.., because it was distribution and/or establishing a short (either has the same impact)

But…, they didn’t want price getting away before the majority of the transaction was completed…

So they allowed price to drop only so far before supporting it (limited buying) – creating another run up – in which they again sold / shorted into

This is market mechanics 101… AND… another aspect of reading PA

When one has hundreds of millions.., if not billions – to spend – entering @ mkt / or even via limit orders will totally fuck up one’s ave cost basis

These boys control price.. and the herd – they typically don’t get screwed by either – SHTF events notwithstanding

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Another way to look at this – see the chart... and what happened…. (direct auction – where the herd lives)

But…, also try to see what had to happen – behind the scenes – to create the chart… (the indirect auction where the big boys play)

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Why folks can’t simply answer a damn question is beyond me

RN

 

[macattack]

Mac

First – change the color of your volume bars to one color – the red/ green thing has a tendency to sway one’s bias / close one’s mind off

What you’re seeing is a controlled distribution of a position and/or a controlled establishment of a short position

Controlled in the sense price is being supported – driven up – then sold off / shorted into (causing price to swing down - but not too far down - yet)

====================

Folks say they don’t know if the high volume is buying or selling – one way to tell.., is ask yourself;

With the high volume – if it was indeed buying – then why didn’t price continue going up…

Simple.., because it was distribution and/or establishing a short (either has the same impact)

But…, they didn’t want price getting away before the majority of the transaction was completed…

So they allowed price to drop only so far before supporting it (limited buying) – creating another run up – in which they again sold / shorted into

This is market mechanics 101… AND… another aspect of reading PA

When one has hundreds of millions.., if not billions – to spend – entering @ mkt / or even via limit orders will totally fuck up one’s ave cost basis

These boys control price.. and the herd – they typically don’t get screwed by either – SHTF events notwithstanding

=================

Another way to look at this – see the chart... and what happened…. (direct auction – where the herd lives)

But…, also try to see what had to happen – behind the scenes – to create the chart… (the indirect auction where the big boys play)

==================

Why folks can’t simply answer a damn question is beyond me

RN

Thank you. I figured it was larger players selling into the new swing highs, but I was missing the "controlled distribution" part you mentioned, so I was was a little confused as to why it kept rising if the big guys were selling. Makes more sense now.

 

[macattack]

Now does anyone know of any resources which go into more detail regarding the type of trading that takes place in CL specifically?

For instance how much of the volume each day is due to hedging activity? How much is related to options? Who are the largest traders in CL? How much of the daily volume is from the public small-time traders? Etc, etc, etc.......

I'm not wondering because I think it'll lead to stellar trading results. I'd just like to understand the market I trade rather than restrict my knowledge to just watching charts & drawing lines all day. You never know what a more thorough understanding might lead to.

 

[JackR]

Now does anyone know of any resources which go into more detail regarding the type of trading that takes place in CL specifically?.......

Mac:

I'm not really into these things but I can add a little to what you are seeking. CL Futures are traded electronically and in "the pit". As you probably know the pit is not open nearly as long as are the electronic venues. The Commodity Futures Trading Commission (CFTC) is the federal agency that is responsible for regulating such trading. The CFTC is supposed to control the maximum number of contracts any single entity can control. How well they do this is a matter of conjecture. The CFTC has published a "Commitment of Traders Report" report for years. It is supposed to show the open positions (short and long) held by various categories of traders. Take a look at this page, it might give you a bit more understanding of what is going on. http://www.cftc.gov/marketreports/commitmentsoftraders/index.htm Note that the contract and options on contracts are covered.

Jack

 

[ogarbitrage]

For instance how much of the volume each day is due to hedging activity? How much is related to options? Who are the largest traders in CL? How much of the daily volume is from the public small-time traders? Etc, etc, etc.......

All of these are dynamic in nature and fluctuate daily. When prices are high, producers hedge. When prices are low, consumers hedge. Meanwhile option market makers are laying off deltas on the screen as option flow arrives. Swap market makers are laying off risk in the futures as OTC order flow arrives.

You should also bear in mind that the 3:2:1, and 2:1:1, and 1:1 crack spreads all have an effect on crude. Winter demand for crude is driven by the demand for heating oil/gasoil while summer demand is driven by the demand for gasoline. Between seasons refineries switch from producing more HO to producing more gasoline or vice versa (shoulder months).

 

[macattack]

Thanks for the info !