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 higher, barring failure of 57.39s as support. This week’s primary expectation did play out as a gap higher open developed in Monday’s auction, driving price higher through key resistance to 61.83s into Tuesday’s trade. Sell excess emerged there, halting the buy-side sequence as pullback developed to 59.87s into mid-week before balance ensued, 59.87s-61.13s, ahead of Friday’s close, settling at 60.69s.
04-08 November 2019:
This week’s auction saw a gap higher open in Monday’s auction as last Friday’s late buyers held the auction. Price discovery higher developed, driving price through last week’s key resistance, 60.07s. Buy-side continuation developed, achieving a stopping point, 61.39s, as buying interest emerged into Monday’s close. Monday’s late buyers held the auction as buy-side continuation developed early in Tuesday’s trade, achieving the weekly stopping point high, 61.83s. Selling interest emerged there amidst sell excess, halting the buy-side sequence. Balance development ensued, 61.83s-61.09s, before buying interest emerged, 61.41s-61.47s, into Tuesday’s close.
Tuesday’s late buyers failed to hold the auction as price discovery lower began early in Wednesday’s auction. Price discovery lower developed to 59.87s as the pullback tested the week’s buy-side breakout area. Buying interest emerged, 60.01s, into Wednesday’s close. Wednesday’s late buyers held the auction as price discovery higher developed into Thursday’s auction to 61.13s, as narrow balance developed before buying interest emerged, 60.91s-60.96s, into Thursday’s close. Thursday’s late buyers failed to hold the auction as rotation lower developed in Friday’s trade to 60s, ahead of Friday’s close, settling at 60.69s.
This week’s auction saw key support hold before price discovery higher continued to 61.83s. Within the larger context, this week’s buy-side sequence occurs 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 the developing balance cluster, 61.83s-59.87s. Sell-side failure to drive price lower from this area will target key supply clusters above, 63s-63.65s/64.25s-64.75s, respectively. Alternatively, buy-side failure to drive price higher from this demand cluster will target key demand clusters below, 58s-57s/56.50s-55.50s, respectively. From a structural perspective, the highest probability path for next week is buy-side, barring failure of 59.87s as 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, upticked slightly. Stocks more broadly, as viewed via the NYSE, trended higher slightly also. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Currently, conditions favor a neutral bias given the rapid alternating breadth within the larger “neutral” zone.
The market structure, order flow, and breadth 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.