In this article, we examine the significant weekly order flow and market structure developments driving XLE price action.
As noted in last week’s XLE Weekly, the primary expectation for this week’s auction was for price discovery higher following last week’s re-test of key support. This week’s primary expectation did not play out as a failed buy-side breakout above key resistance developed in Tuesday’s auction before price discovery lower developed to 57.01s ahead of Friday’s close, settling at 57.03s.
14-18 October 2019:
This week’s auction saw a gap lower open in Monday’s auction as last Friday’s late buyers failed to hold the auction. Price discovery lower developed to 57.25s where the sell-side auction halted, driving price higher to 58.08s where buying interest emerged into Monday’s close. Monday’s late buyers held the auction as price discovery higher continued in Tuesday’s trade, achieving the weekly stopping point high, 58.31s, amidst a buy-side breakout attempt above last week’s resistance. Buyers trapped, 58.66s, driving price lower back into prior balance to 58.08s, where buying interest emerged into Tuesday’s close.
Tuesday’s late buyers failed to hold the auction as price discovery lower continued through Wednesday’s trade before achieving a stopping point, 57.15s, into Thursday’s auction. Balance development ensued, 57.15s-57.64s, into Friday’s auction before a minor probe lower developed, achieving the weekly stopping point low, 57.01s, ahead of Friday’s close, settling at 57.03s.
This week’s auction saw a pullback early week to 57.24s before price discovery higher developed to 58.68s, testing last week’s key resistance. Buyers trapped there before price discovery lower developed in earnest to 57.01s forming an unsecured low ahead of week’s end. Within the larger context, this week’s pullback 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 unsecured low, 57.01s. Buy-side failure to drive price higher from this demand cluster will target key demand clusters below, 56.50s-55.50s/54.50s-53.50s, respectively. Alternatively, sell-side failure to drive price lower from this area will target key supply clusters above, 59.20s-60s/61s-61.50s, respectively. From a structural perspective, the highest probability path for next week is sell-side barring failure of 57.64s as key resistance. 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, declined. Stocks more broadly, as viewed via the NYSE, were largely unchanged in sentiment terms. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Currently, conditions favor a neutral bias given the rapid alternating sentiment within the larger “neutral” zone.
The market structure, order flow, and sentiment 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.