In this article, we examine the significant weekly order flow and market structure developments driving NYSEARCA:XLU price action.
As noted in last week’s XLU Weekly, the highest probability path for this week was for price discovery lower, barring failure of 64.75s as resistance. This week’s primary expectation did not play out as a sell-side breakdown attempt early week to 63.55s failed. Buy excess formed there, halting the sell-side sequence, driving price higher to 64.63s ahead of Friday’s close, settling at 64.40s.
06-10 January 2020:
This week’s auction saw balance development, 63.76s-64.17s, in Monday’s auction around last week’s settlement before buying interest emerged, 64s, into Monday’s close. Monday’s late buyers failed to hold the auction as a sell-side breakdown attempt developed in Tuesday’s trade, achieving the weekly stopping point low, 63.55s. Buy excess formed there as buying interest emerged, halting the sell-side sequence, driving price higher to 63.91s where buying interest emerged into Tuesday’s close.
Tuesday’s late buyers held the auction as minor price discovery higher continued in Wednesday’s trade, achieving a stopping point, 64.16s. Selling interest emerged late in Wednesday’s auction as price discovery lower developed to 63.86s where buying interest emerged into Wednesday’s close. Wednesday’s late buyers held the auction into Thursday’s trade, despite a minor probe lower, before price discovery higher continued, achieving a stopping point, 64.30s, before buying interest emerged, 64.17s-64.24s, into Thursday’s close. Thursday’s late buyers held the auction as price discovery higher continued in Friday’s trade, achieving the weekly stopping point high, 64.63s. Selling interest emerged there amidst a sell excess, halting the buy-side sequence, developing balance ahead of Friday’s close, settling at 64.40s.
This week’s auction did not see the primary expectation play out as a failed breakdown resulted in price discovery higher to test key supply overhead, 64.75s-65s. Within the larger context, this week’s auction saw continued balance development near major supply, 64.50s-65s.
Looking ahead, the focus into next week centers upon response to the key supply cluster, 64.50s-65s. Sell-side failure at this key cluster would target key supply cluster above new all-time highs, respectively. Alternatively, buy-side failure within this key cluster would target key demand clusters below, 63.20s-62.65s/61.80s-61.30s, respectively. From a structural perspective, the highest probability path near-term is sell-side, barring failure of 64.75s as resistance. Within this near-term context, the intermediate term (3-6 month) bias is now neutral between 64.94s and 61.31s and at a key juncture and depends on resolution around 64s.
It is worth noting that breadth based on the S&P Utility Sector Bullish Percent Index has seen the beginning of a downtrend from all-time highs formed in August-September 2019. Stocks more broadly, as viewed via the NYSE, have seen recent rising bullish breadth. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Intermediate term structure shifts neutral as utility breadth declines amidst broader market bullish breadth. This divergence may mute what is potentially sector rotation out of utilities.
The market structure, order flow, and breadth posture will provide the empirical evidence needed to observe where asymmetric opportunity resides.
This article was written by
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.