XLV Weekly: Minor Price Discovery Higher Back Into Major Supply Overhead

Feb. 15, 2020 12:55 AM ETHealth Care Select Sector SPDR (XLV)
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Summary

  • Minor price discovery lower to 102.58s in Monday's auction from last week’s settlement where buy excess formed before price discovery higher developed to 104.30s into Tuesday’s close.
  • A failed buy-side breakout developed in Wednesday’s trade where sell excess formed, driving price lower to 103.43s ahead of the week’s end.
  • Bullish breadth continues increasing within bullish extreme area.

In this article, we examine the significant weekly order flow and market structure developments driving NYSEARCA:XLV's price action.

The highest probability path was for price discovery lower, barring failure of 104.24s as resistance. This probability path did not play out as minor price discovery lower early week resulted in buy excess which halted the sell-side sequence early in Monday's auction. Price discovery higher then developed to 104.84s where sell excess developed within key supply, driving price lower to 103.40s ahead of Friday's close, settling at 103.93s.

10-14 February 2020:

This week's auction saw a minor probe lower in Monday's auction, achieving the weekly stopping point low, 102.58s. Buy excess developed, driving price higher to 103.59s as buying interest emerged, 103.31s/103.50s, ahead of Monday's close. A minor gap higher open developed in Tuesday's trade as buy-side continuation developed to 104.30s, testing last week's key resistance as buying interest emerged, 103.94s-104.22s, into Tuesday's close.

Tuesday's late buyers initially held the auction as a buy-side breakout attempt developed above last week's key resistance, achieving the weekly stopping point high, 104.28s. Structural sell excess formed early in Wednesday's trade, driving price lower back below prior key resistance as the breakout attempt failed. Constricted price discovery lower developed through Wednesday's auction, achieving a stopping point, 103.64s, early in Thursday's trade. Sellers trapped there as balance developed, 103.64s-104.28s, into Thursday's close. A minor probe lower developed to 103.43s early in Friday's auction where sellers trapped and minor rotation higher ensued to 104s ahead of Friday's close, settling at 103.93s.

XLV Weekly 14Feb20

This week's auction saw a sell-side attempt to push price lower fail early week before rotation higher developed to 104.84s within key supply overhead. Within the larger context, balance development continues, 105.08s-98.81s, following 2019's rally.

Looking ahead, the focus into next week will center upon market response to this week's key resistance, 104.40s-104.83s. The market continues to seek resistance, within a buy-side phase, in a process called price discovery. Sell-side failure to drive price lower from this resistance would target new, all-time highs. Alternatively, buy-side failure at this resistance would target key demand clusters below, 100.84s-98.82s/95.67s-93.71s, respectively. From a structural perspective, the highest probability path near-term is buy-side barring failure of 102.56s as support. Within this near-term context, the intermediate-term (3-6 month) bias is neutral between 105.08s and 98.81s.

It is worth noting that breadth, based on the S&P Healthcare Sector Bullish Percent Index, is now trending higher within the bullish extreme area. Stocks more broadly, as viewed via the NYSE, exhibit a current consolidation of bullish breadth. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. A cautious bullish bias remains warranted as market structure is bullish while breadth approaches bullish extreme levels.

XLV Breadth 14Feb20

Looking under the hood of XLV, we see that based on one year's data, Johnson & Johnson (JNJ) and UnitedHealth Group Inc. (UNH) have contributed substantially to the recent rally (121bps and 99bps respectively). This duo represents approximately 17% of the entire XLV, and as such, is likely to have material effect on XLV itself.

XLV Holdings 14Feb20

The market structure, order flow, and sentiment posture will provide the empirical evidence needed to observe where asymmetric opportunity resides.

This article was written by

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Historical Data Mining & Visualization for NYMEX energy markets. Our experience derives from the proprietary trading world involved in US Index derivatives, commodity ETF derivatives, and exchange-traded NYMEX WTI derivatives.Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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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.

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