In this article, we examine the significant weekly order flow and market structure developments driving (XLU) price action.
As noted in last week’s XLU Weekly, the highest probability path for this week was for buy-side price activity. A buy-side breakout attempt did develop early week, as buying interest drove price through last week’s sell excess, achieving the stopping point high, 58.74s, where sell excess developed before closing at 58.19s.
11-15 March 2019:
This week saw a buy-side breakout in Monday’s auction as buying interest emerged, 57.57s, driving price higher through last week’s sell excess, 57.71s-57.50s. Minor range extension higher developed to 57.89s late in Monday’s trade as buying interest emerged, 57.82s-57.97s, into Monday’s close. Monday’s late buyers held the auction as price discovery higher developed through Tuesday’s trade, achieving a stopping point, 58.42s. Buyers in size trapped, 58.42s/58.39s, developing balance, 58.42s-58.18s, into Tuesday’s close. Balance development continued through Wednesday’s trade.
A buy-side breakout attempt developed early in Thursday’s auction as minor price discovery higher developed, achieving the stopping point high, 58.74s. Buyers trapped, 58.71s, as structural sell excess developed, 58.74s-58.55s, driving price modestly lower to 58.28s. Selling interest emerged, 58.40s/58.35s, into the Thursday’s close. Thursday’s sellers held the auction as a gap lower open developed in Friday’s trade, driving price lower to 57.74s. Buy excess developed there as sellers trapped, 57.86s, driving price modestly higher ahead of Friday’s close, settling at 58.19s.
This week’s auction saw buying interest and a buy-side breakout early week consistent with the week’s primary expectation. Price discovery higher developed to 58.74s in Thursday’s auction where sell excess developed, halting the buy-side sequence at new all-time highs.
Looking ahead, the focus into next week will center upon market response to the buy-side breakout area/this week’s pullback low, 58s-57.75s. Buy-side failure at this key support area would target key demand clusters below, 57.40s-57.10s/56.75s-56.50s. Alternatively, sell-side failure at key support would target new all-time highs. The week’s sell excess is structural indication of a potential stopping point high. From a structural perspective, the highest probability path into next week remains buy-side, provided key support holds. It is also worth noting XLU has closed higher in ten of the last ten weeks. Within this near-term context, the intermediate term (3-6 month) has shifted buy-side with acceptance above 57.32s. Market behavior in this area in coming days and weeks is structurally significant.
It is worth noting that sentiment based on the S&P Utility Sector Bullish Percent Index now reflects a bounce from the levels of neutral sentiment 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. Within the context of December 2018’s correction, the market developed a stopping point low within prior key demand. Subsequently, price discovery higher back to major resistance and all-time highs has developed. The market has auctioned from levels of neutral sentiment to extreme optimism as price makes new all-time highs. This development warrants caution regarding further buy-side potential for utility shares. While higher prices continue, the bullish sentiment in this sector stands at extreme optimism.
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.