- A gap higher open in Monday’s trade saw a rally phase to 90.56s into Tuesday’s auction.
- A pullback developed to 88.08s before the rally resumed to 92.14s where buyers trapped.
- A pullback developed to 88.56s into the week’s end.
- From a structural perspective, the highest probability path near-term is sell-side, barring failure of 91.63s as resistance.
- Bullish breadth resumes decline from the bullish extreme zone.
In this article, we examine the significant weekly order flow and market structure developments driving NYSEARCA:XLK price action.
As noted in last week’s XLK Weekly, the highest probability path for this week was buy-side, barring failure of 86.50s as support. This primary expectation did play out as buying interest near last week’s resistance drove price higher to 92.14s into mid-week. Buyers trapped there, halting the rally before driving price lower to 88.65s ahead of Friday’s close, settling at 88.63s.
27 April-01 May 2020:
This week’s auction saw a gap higher open in Monday’s auction as last Friday’s late buyers held the auction. A rally ensued, driving price higher to 89.69s where buyers trapped as balance developed, 89.69s-88.86s, into Monday’s close. Buy-side continuation unfolded early in Tuesday’s trade, achieving a stopping point, 90.56s, where sellers trapped. A pullback ensued where selling interest emerged, 89.11s, before achieving the weekly stopping point low, 88.08s, into Tuesday’s close.
Tuesday’s late sellers failed to hold the auction as a gap higher open formed in Wednesday’s auction as additional sellers trapped, driving price higher, achieving the weekly stopping point high, 92.14s, where buying interest emerged into Wednesday’s close. Wednesday’s late buyers failed to hold the auction as a pullback ensued in Thursday’s trade to 90.72s before selling interest emerged, 91.32s on the uptick into Thursday’s close. A gap lower open developed in Friday’s auction as a pullback ensued, achieving a stopping point, 88.56s, ahead of Friday’s close, settling at 88.90s.
This week’s auction saw key support, 86.50s, hold early week as the rally phase continued to 92.14s. Buyers trapped there, halting the rally as a pullback ensued to 88.56s into week’s end. Within the larger context, it is likely that the market has formed its retracement high following the breakdown below January support, 94.71s.
Looking ahead, the focus into next week’s auction will center upon response to key support, 88.08s. Buy-side failure at this key support would target key demand clusters below, 84s-82.86s/79.25s-75.96s, respectively. Alternatively, sell-side failure to drive price lower from this key area would target key supply above, 94s-94.71s/100s-102.94s, respectively. From a structural perspective, the highest probability path near-term is sell-side barring failure of 91.63s as resistance. Within this near-term context, the intermediate term (3-6 month) bias is bearish barring failure of 94.71s as resistance.
When looking under the hood of XLK, the performance of the ETF hinges largely upon the behavior of two stocks, Microsoft (MSFT) and Apple (AAPL). Together, they have accounted for +626 and +682 basis points of XLK’s return over the last year, respectively.
As go Microsoft and Apple, so goes the XLK.
It is worth noting that breadth, based on the S&P Technology Sector Bullish Percent Index, saw a historic collapse in breadth from February into March before a historic rise in breadth back to bullish extreme. Stocks more broadly, as viewed via the NYSE, saw similar behavior. Recently, breadth has begun to decline from the bullish extreme state. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Market structure is bearish while breadth is now bearish. Despite the large price movement lower in recent weeks, it remains most probable that the corrective phase is not yet complete, and the next wave lower is near.
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
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