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 following last week's structural buy excess at key demand. Price discovery higher developed early week to test key resistance. Buying interest then emerged near key resistance, driving price higher in a buy-side breakout to 72.63s ahead of Thursday's close, settling at 72.35s.
08-14 March 2019:
This week saw a gap higher in Monday's auction following last week's stopping point low development. Sellers trapped, 70.06s, before price discovery higher developed to 71.38s, near key resistance ahead of Monday's close. Buying interest emerged, 71.30s-71.34s, into Monday's close. Monday's late buyers held the auction into Tuesday's trade as a buy-side breakout developed through last week's resistance to 71.97s.
A gap higher open developed in Wednesday's trade as buy-side continuation developed, achieving the stopping point high, 72.63s. Buyers trapped, 72.55s, as minor balance developed through Thursday's auction, closing at 72.35s.
This week's auction saw key support hold before buying interest drove price higher through resistance in buy-side continuation to 72.63s. The failure of key resistance at 71.81s implies the corrective phase terminated in last week's auction. This development implies potential for further price discovery higher.
Looking ahead, the focus into Friday and next week's auctions will center upon market response to this week's buy-side breakout area, 72.10s-71.80s, for confirmation/negation of the breakout attempt. Sell-side failure to drive price lower through this key demand would target major supply cluster overhead, 73s-76s. Failure of the buy-side to defend this area would target key demand clusters below, 71.50s-70.70s/70s-69.25s. From a structural perspective, the highest probability path into next week remains buy-side based on the failure of key resistance in this week's auction. 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 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. Following the momentum low of November 2018, the market developed a stopping point low which now serves as meaningful support within the context of a seasonal low period (December-January). The market has auctioned from levels of extreme pessimism and now trades near extreme optimism into 2017's area of extreme bullish sentiment. The first decline in sentiment since the beginning of this rally phase recently developed. As noted last week, this warrants caution regarding further buy-side potential for technology shares. New near-term price highs are developing on a lack of new bullish 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.