In this article, we examine the significant weekly order flow and market structure developments driving XLE price action.
06-11 January 2019:
As noted in last week’s XLE Weekly, the primary inference for this week was for price discovery higher. This week’s auction saw buying interest early week, 60.30s, as last week’s unsecured high failed, driving price higher to 62.41s, closing the week at 62.01s.
This week saw buying interest, 60.30s, in Monday’s auction as last week’s unsecured high failed at resistance. Price discovery higher continued into Tuesday’s auction, achieving a stopping point, 61.75s. A minor sell excess developed there, halting the buy-side auction as two-sided trade developed, 61.75s-60.90s, where selling interest in size emerged. Sellers trapped there before buying interest emerged late in Tuesday’s auction, 61.23s-61.31s.
Price discovery higher developed in Wednesday’s auction as the trapped sellers from Tuesday adjusted inventory higher, achieving a stopping point high, 62.41s, into Wednesday’s close. Buyers trapped near the high, 62.27s, developing balance into Thursday’s auction. A minor probe of the high developed to 62.46s where selling interest emerged, driving price back into prior balance as two-sided trade continued through Friday’s auction, settling at 62.01s.
This week’s auction saw price discovery higher, consistent with our primary expectation, as price discovery higher developed to 62.46s into week’s end. Within the broader context, this week’s buy-side continuation occurred following the development of a structural stopping point low during the last week of December 2018 as the market auctioned higher into the initial key supply cluster overhead, 61.60s-64.60s.
Looking ahead, the focus into next week will center upon market response to the current developing balance, 61.38s-62.46s, as large consensus develops there. This week’s high was unsecured, and this structural formation implies need for repair. From a structural perspective, the highest probability path this week remains buy-side with the expectation that a meaningful sell response will develop within this key supply cluster at some point in the near-term. Within this near-term context, the intermediate term (3-6 month) bias remains sell-side.
It is worth noting that sentiment based on the S&P Energy Sector Bullish Percent Index now reflects a bounce from the levels of extreme pessimism developed late December into early January. Stocks more broadly, as viewed via the NYSE, have now also seen a bounce from a similar level. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Within the context of a seasonal low period (December-January), the market developed a stopping point low within prior key demand. It is now possible that the recent market activity has formed a price low following the momentum low of November 2018 which could serve as meaningful support.
The market structure, order flow, and sentiment posture will provide the empirical evidence needed to observe where asymmetric opportunity resides.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.