In this article, we examine the significant weekly order flow and market structure developments driving XLF price action.
The highest probability path for this week was for price discovery higher following last week’s unsecured high, 29.15s. This primary expectation played out, as a buy-side breakout through key near-term resistance developed early week. Price discovery higher to 30.03s ahead of Friday’s close, settling at 29.84s.
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, achieving a stopping point, 29.62s, into early Tuesday’s trade. Buyers trapped amidst sell excess there, developing balance, 29.62s-29.41s, through Wednesday’s auction. Buying interest emerged, 29.59s-29.61s, into Wednesday’s close.
Wednesday’s late buyers held the auction as a gap higher open developed in Thursday’s trade, driving price higher, achieving the weekly stopping point high, 30.03s. Buyers trapped there, driving price modestly lower in retracement to 29.64s into Friday’s open. Structural buy excess formed there, halting the sell-side sequence, driving price modestly higher to 29.85s ahead of Friday’s close, settling at 29.84s.
This week’s auction saw price discovery higher to 30.03s as price discovery higher continues toward all-time highs. Within the broader context, buy-side breakout has developed above key intermediate resistance, 28.70s.
Looking ahead, the focus into next week’s auction will center upon market response to key resistance, 30.03s. Sell-side failure to drive price lower back through this area will result in price discovery higher to challenge all-time highs, 30.30s. Alternatively, buy-side failure at this area will target key demand clusters below, 29.30s-29.15s/28.70s-28.50s, respectively. The highest probability path near-term based on market structure is for price discovery higher. The larger intermediate term bias (3-6 month) is buy-side above barring failure of 28.72s as support.
It is worth noting that breadth based on the S&P Financial Sector Bullish Percent Index sees trend higher in bullish breadth. Stocks more broadly, as viewed via the NYSE, are also now seeing a similar posture. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. While the broad market’s breadth remains neutral, financials’ breadth is now moving into bullish extreme territory. Breadth and sentiment can remain extreme for prolonged periods, and thus, financials remain bullish until market structure and breadth both confirm a potential for reversal.
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.