In this article, we examine the significant weekly order flow and market structure developments driving XLF's price action.
As noted in last week's XLF Weekly, the highest probability path for this week was for sell-side activity provided key supply, 25.80s-26s, held as resistance. This primary expectation did not play out as last week's buy excess held, as support and buying interest drove the price higher to test key resistance, 26.23s. A minor probe of the high developed to 26.43s before balance developed into week's end.
10-15 February 2019:
This week saw buying interest, 25.64s-25.78s, in Monday's auction following last Friday's structural buy excess, 25.34s-25.55s, as minor price discovery higher developed to 25.80s, at the lower bound of key resistance. A gap higher open developed Tuesday to 25.94s, driving price higher, challenging key supply to 26.23s. Buying interest emerged early in Wednesday's auction, 26.25s, at key resistance as a buyside breakout attempt developed, driving price higher to 26.43s. Buyers trapped there, 26.39s-26.35s, as sell excess drove price lower back to the buyside breakout area.
A gap lower open developed Thursday to 26s as price discovery lower continued, achieving a pullback low at 25.73s. Sellers trapped, 25.81s-25.90s, as two-sided trade near resistance developed into Thursday's close. Friday's auction saw buying interest and price discovery higher back into Wed's sell excess, challenging the breakout high ahead of Friday's close, settling at 26.43s.
This week's auction saw buying interest through the key supply area, 25.80s-26s, negating the near-term sell-side bias. Subsequently, a buy-side breakout above prior resistance failed mid-week only to see buying interest upon the pullback drive price back to the high, developing a structural unsecured high, 26.43s. Last week's buy excess was structural indication of potential for price discovery higher (provided key supply failed). Within the broader context, failure of the near-term sell-side bias and the development of a structural unsecured high imply price discovery potential higher toward the next key resistance, 27.47s.
Looking ahead, the focus into next week will center upon market response to this week's unsecured high, 26.43s. Sell-side failure at this area will result in further near-term price discovery higher within the larger intermediate term (3-6 month) sell-side posture. From a structural perspective, the highest probability path into next week is for buy-side continuation toward key supply above, 26.80s-27.25s, respectively.
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, following the momentum low of November 2018 which now serves as meaningful support. The market remains well away from sentiment levels reflecting extreme optimism in a more neutral area of sentiment.
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.