Buy-side breakout in Monday’s auction, price discovery higher to 71.47s.
Selling interest there, pullback to key support, and balance development through Thursday’s auction.
Bullish sentiment now reaching extreme level.
This week’s auction saw balance development above last week’s key resistance before price discovery continued.
In this article, we examine the significant weekly order flow and market structure developments driving XLK's price action.
As noted in last week's XLK Weekly, the highest probability path for this week was for price discovery higher based on last week's unsecured high development. A buy-side breakout did develop early this week as minor price discovery higher developed to 71.47s early in Monday's auction before selling interest emerged, halting the auction and developing balance, 71.46s-70.33s, through Thursday's close as the breakout area held as support.
24-28 February 2019:
This week saw a buy-side breakout develop early in Monday's auction, driving price higher through last week's unsecured high, achieving the stopping point, 71.41s. Selling interest emerged there, halting the breakout and developing balance, 71.41s-70.67s, through Tuesday's trade. Buying interest in size, 71.20s-71.13s, developed into Tuesday's close.
Tuesday's late buyers failed as a gap lower open developed in Wednesday's auction, driving price aggressively lower to 70.33s, at the key demand cluster and the breakout area. Self-similar buying interest emerged there as key support held and balance development continued, 70.33s-71.15s, through Thursday's auction, closing at 70.86s.
This week's auction saw a buy-side breakout above last week's unsecured high to 71.41s and buying interest at the key support upon the pullback. Balance development continued above key support following the pullback through Thursday's auction. Within the broader context, this week's buy-side auction occurs within key supply overhead, 70s-71.30s.
Looking ahead, the focus into Friday's auction and next week will center upon market response to this week's buy-side breakout area/key support, 70.40s-70.70s. Failure of the buy-side to defend this area and ultimately drive price higher will signal a more meaningful structural resistance. The market continues to seek price where the buy-side auction will be shut off. Sell-side failure at the current key support opens the door to buy-side continuation to key supply overhead, 71.30s/74s-76.29s, respectively. Alternatively, buy-side failure at the current high would target key demand clusters below, 70s-69.40s/67.60s-67.20s, respectively. From a structural perspective, the highest probability path into next week remains buy-side with the expectation that a meaningful sell response could develop within the key supply cluster, 70s-71.30s, at some point in the near-term. It is also worth noting XLK is poised to close higher in nine out of the last ten 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 Technology Sector Bullish Percent Index now reflects a dramatic move from the levels of extreme pessimism developed late December/early January now to levels of extreme optimism. Stocks more broadly, as viewed via the NYSE, have now also seen a bounce from a similar level, albeit more muted. 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 into 2017's area of extreme sentiment. This warrants caution regarding further buy-side potential for technology shares. Current key supply, 70s-71.30s, could become more structurally significant should this extreme optimism continue without price confirmation higher.
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.