In this article, we examine the significant weekly order flow and market structure developments driving XLE price action.
The highest structural probability for this week was for price discovery higher through last week’s balance cluster and unsecured high. This week’s auction saw buy-side breakout early week from balance and price discovery higher to 26.03s into Friday’s auction.
13-18 January 2019:
This week saw sellers in size trap, 24.46s/24.50s, in Monday’s auction at/near last week’s key resistance. The failure of these sellers resulted in price discovery higher and a buy-side breakout. Tuesday’s pullback and retest of the breakout area/prior resistance saw buying interest and buy-side continuation to 24.93s ahead of Wednesday’s auction. Again, the sellers failed within the context of the large buy-side structure resulting in a gap higher open in Wednesday’s auction. Price discovery higher developed, achieving a stopping point, 25.57s, where selling interest halted the auction into Wednesday’s close.
A pullback developed in Thursday’s auction, as price discovery to 25.17s developed. Buying interest emerged there, rejecting the low, as buying interest, 25.47s-25.55s, drove price back through the range to 25.65s late in Thursday’s auction. Sell-side failure at the high resulted in price discovery higher in Friday’s auction, achieving the stopping point high, 26.03s, settling at 26.00s.
This week’s auction saw price discovery higher, consistent with last week’s structure. Within the broader context, this week’s buy-side continuation occurred following the structural stopping point low of December 2018. The market now auctions near the initial key supply cluster overhead, 25.92s-27.47s.
Looking ahead, the focus into next week will center upon market response to this week’s unsecured high, 26.03s. The unsecured high structure 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 the overhead supply cluster at some point in the near-term. Within this near-term context, the intermediate term (3-6 month) bias remains sell-side barring acceptance above 27.50s.
It is worth noting that sentiment based on the S&P Financial 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. 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.