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 buy-side activity from key demand following last week's initial pullback phase from 26.94s. This primary expectation did play out as a buy excess developed in Friday's auction, halting the sell-side phase before buying interest drove price higher to 26.68s, ahead of Thursday's close, settling at 26.58s.
08-14 March 2019:
This week saw a minor probe lower in last Friday's auction, achieving a stopping point low, 25.68s. Buy excess emerged there as sellers trapped, driving price higher to 25.99s, ahead of Friday's close where buyers emerged, 25.92s-25.98s. Friday's late buyers held the auction as a gap higher open developed in Monday's trade, driving price higher to 26.32s. Selling interest emerged there as balance developed, 26.20s-26.39s, through Tuesday's auction.
Buying interest emerged, 26.37s/26.38s, early in Wednesday's auction as buy-side continuation developed through Wednesday and Thursday's auction, achieving a stopping point, 26.68s, near key supply overhead, 26.70s-26.90s. Selling interest emerged there ahead of Thursday's close, settling at 26.58s.
This week's auction saw minor probe of key demand early week where buy excess developed. Price discovery higher then ensued as the expectation for retracement played out. The retracement higher likely serves as a relief rally within the context of an uncompleted corrective pattern. Within the broader context, the development of a structural sell excess within key supply implies more significant resistance area is potentially developing.
Looking ahead, the focus into Friday and next week's auctions will center upon market response to key supply overhead, 26.70s-26.90s. The highest probability path into next week is for sell-side activity within a developing corrective phase, provided the sell excess above holds as resistance. Buy-side failure at this area will result in further near-term price discovery lower toward key demand clusters below, 26s-25.68s/24.60s-24.10s, respectively. Alternatively, sell-side failure at this key supply area will result in buy-side continuation higher to challenge key supply overhead, 27.30s-27.60s/27.90s-28.35s, respectively. The larger intermediate-term bias (3-6 month) is now neutral between 25.34s and 27.47s.
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 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. Following the momentum low of November 2018, the market developed a stopping point low, which now serves as meaningful support. Sentiment continues moving higher toward a posture of extreme optimism. While not yet at extreme optimism, key supply, 25.90s-27.50s, will be the first area of real challenge for the buy-side and could become more structurally significant should optimism continue to increase 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.