In this article, we examine the significant weekly order flow and market structure developments driving XLE price action.
The primary expectation for this week’s auction was for price discovery lower within the context of test of key support, 55.50s-56s. This week’s primary expectation played out as price discovery lower developed early week to 55.82s where buying interest emerged late in Tuesday’s auction. Price discovery higher then ensued to 58.42s ahead of Friday’s close, settling at 57.89s.
07-11 October 2019:
This week’s auction saw selling interest, 57.47s/57.51s, in Monday’s trade, driving price lower, achieving a stopping point, 56.84s. Buying interest emerged, 56.96s/56.98s, into Monday’s close. Monday’s late buyers failed to hold the auction as a gap lower open developed in Tuesday’s auction, driving price lower, achieving the weekly stopping point low, 55.82s. Sellers trapped amidst buying interest, 55.82s-55.96s, ahead of Tuesday’s close as key support was held.
Minor price discovery higher developed in Wednesday’s auction to 56.72s before narrow balance developed, 56.72s-56.31s. Sellers trapped early in Thursday’s trade, 56.71s, driving price higher to 57.27s as buying interest emerged, 57.15s, into Thursday’s close. A gap higher open developed in Friday’s auction, driving price higher, achieving the weekly stopping point high, 58.42s, ahead of Friday’s close, settling at 57.89s.
This week’s auction saw price discovery lower early week to 55.82s, testing key support. Buying interest emerged there, driving price higher to 58.42s. Within the larger context, this week’s buy-side defense of key support developed following the larger corrective phase from 64.66s into 2019’s major support area, 55.60s-53.30s, where a structural low, 55.55s, has formed.
Looking ahead, the focus into next week will center upon response to this week’s buy-side breakout area, 57.80s-57.60s. Sell-side failure to drive price lower from this area will target key supply clusters above, 59.20s-60s/61s-61.50s, respectively. Alternatively, buy-side failure to drive price higher from this demand cluster will target key demand clusters below, 56.50s-55.50s/54.50s-53.50s, respectively. From a structural perspective, the highest probability path for next week is buy-side following this week’s buy-side defense of key support. The larger context remains neutral between 55.50s-63.65s.
It is worth noting that sentiment, based on the S&P Energy Sector Bullish Percent Index, showed modest declining bullish sentiment. Stocks more broadly, as viewed via the NYSE, have also seen modestly declining bullish sentiment. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Currently, conditions favor a neutral bias given the rapid alternating sentiment within the larger “neutral” zone.
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.