In this article, we examine the significant weekly order flow and market structure developments driving XLK price action.
The highest probability path for this week was for price discovery higher, barring failure of 80.40s as support. This primary expectation did play out as key support was tested into mid-week where buying interest emerged, driving price higher to 83.02s at/near all-time highs. Narrow balance developed at the high ahead of Friday’s close, settling at 82.92s.
21-25 October 2019:
This week’s auction saw price discovery higher in Monday’s auction as last Friday’s late sellers failed to hold the auction. Price discovery higher developed to 81.82s where buying interest emerged into Monday’s close. While Monday’s late buyers held the auction, price discovery higher early in Tuesday’s trade resulted in sell excess, halting the buy-side sequence. Price discovery lower developed through Tuesday’s trade, achieving the weekly stopping point low, 80.26s, into Wednesday’s open.
Narrow balance developed, 80.26s-80.72s, in Wednesday’s trade as buying interest emerged, 80.50s/80.59s, around key support. Selling interest emerged at the balance high, 80.72s, into Wednesday’s close. Wednesday’s late sellers failed to hold the auction as a gap higher open developed in Thursday’s trade. Price discovery higher developed to 82s before buying interest emerged, 81.97s, 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, 83.02s, ahead of Friday’s close, settling at 82.92s.
This week’s auction saw key support re-tested into mid-week where buying interest emerged, driving price higher toward all-time highs. Within the larger context, balance development continues within major supply at/near all-time highs.
Looking ahead, the focus into next week’s auction will center upon market response to this key resistance, 82.50s-83s. Sell-side failure to drive price lower from this key resistance would target new all-time highs. Alternatively, buy-side failure at this key support would target key demand clusters below, 80.80s-80.20s/78s-77.75s, respectively. From a structural perspective, the highest probability path near-term is buy-side barring buy-side failure at key resistance, 82.50s-83s. Within this near-term context, the intermediate term (3-6 month) bias, now at a key juncture, remains neutral only between 83.02s and 75.14s.
It is worth noting that breadth based on the S&P Technology Sector Bullish Percent Index is largely unchanged this week following the bullish breadth bounce from lows made in June 2019. Stocks more broadly, as viewed via the NYSE, are now exhibiting similar neutral posture in breadth. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Market structure and breadth are divergent (structure bullish/breadth neutral). This implies potential for higher prices barring buy-side failure at major resistance here.
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.