In this article, we examine the significant weekly order flow and market structure developments driving XLK's price action.
The highest structural probability for this week was for price discovery higher to challenge key resistance, 68.73s, following last week's pullback to 66.95s. Rotation higher to test key resistance, 68.73s, did develop early this week before buying interest emerged at resistance, driving price higher in buy-side continuation to 69.69s.
10-15 February 2019:
This week saw narrow, two-sided trade in Monday's trade following last week's late pullback to 66.95s. A gap higher open developed in Tuesday's auction at 68.43s, before buying interest emerged, 68.82s, upon the challenge of key resistance. Price discovery higher developed into Wednesday's auction, achieving a stopping point, 69.45s.
Minor structural sell excess developed in Wednesday's auction, as balance developed, 69.45s-68.91s. Minor pullback developed in Thursday's auction to 68.64s as a re-test of the buy-side breakout area/prior resistance unfolded. Key support held as rotation higher back to test the high developed into Friday's auction, achieving the stopping point high, 69.69s, closing at 69.62s.
This week's auction saw buy-side continuation through key resistance following last week's pullback. The market formed a structural unsecured high. Within the broader context, this week's auction higher occurs as the market approaches key supply overhead, 70s-71.30s.
Looking ahead, the focus into next week will center upon market's response to this week's unsecured high. Unsecured highs generally do not hold as resistance and thus imply either a repair (sell excess) or buy-side continuation is most likely. In simplest terms, the market continues to seek price where the buy-side auction will be shut off. From a structural perspective, the highest probability path into next week is buy-side with the expectation that a meaningful sell response could develop within the key supply cluster overhead, 70s-71.30s, at some point in the near-term. It is also worth noting XLK has closed higher in seven out of the last eight weeks. Within this near-term context, the intermediate term (3-6 month) bias remains neutral between 57.57s and 76s.
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, recent market activity has formed a price low which now serves as meaningful support. The market has auctioned from levels of extreme pessimism and now trades near extreme optimism. This warrants caution regarding further buy-side potential for technology shares.
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.