In this article, we examine the significant weekly order flow and market structure developments driving XLE price action.
The primary expectation for this week’s auction was for price discovery lower, barring failure of 60.40s as resistance. This week’s primary expectation did play out as buyers trapped early week within key supply, driving price lower to 59s into mid-week. The re-test of the sell-side breakdown area, 59.60s, held as resistance ahead of Thursday’s holiday, driving price lower to 58.67s, ahead of Friday’s close, settling at 58.89s.
25-29 November 2019:
This week’s auction saw balance development in Monday’s trade within last week’s key supply cluster, 59.80s-60.40s. Buying interest emerged, 59.90s, into Monday’s close. Monday’s late buyers failed to hold the auction as price discovery lower developed in a sell-side breakdown through key support, 59.60s. Price discovery lower developed in Tuesday’s trade, achieving a stopping point, 59.12s, before buying interest emerged, 59.14s-59.34s, into Tuesday’s close.
A minor probe lower developed early in Wednesday’s trade, achieving a stopping point, 59s. Minor buy excess developed there amidst buying interest as Tuesday’s late buyers held the auction and price discovery higher developed to 59.61s, at/near the sell-side breakdown area. Selling interest emerged there into Wednesday’s close ahead of Thursday’s holiday. Wednesday’s late sellers held the auction as price discovery lower developed in Friday’s trade, achieving the weekly stopping point low, 58.67s, ahead of Friday’s close, settling at 58.89s.
This week’s auction saw key supply, 59.80s-60.40s, hold before price discovery lower ensued to 58.67s, within the developing, corrective phase from 61.83s. Within the larger context, this week’s sell-side sequence 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 this week’s key support, 58.67s. Buy-side failure to drive price higher from this support will target key demand clusters below, 58s-57.50s/56.50s-55.50s, respectively. Alternatively, sell-side failure to drive price lower from this area will target key supply clusters above, 61.50s-61.83s/63s-63.65s, respectively. From a structural perspective, the highest probability path for next week is sell-side barring 58.67s holds as key support. The larger context remains neutral between 55.50s-63.65s.
It is worth noting that breadth, based on the S&P Energy Sector Bullish Percent Index, declined this week. Stocks more broadly, as viewed via the NYSE, trended higher in divergence with the energy sector. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Currently, conditions favor a modestly bearish bias near-term within the larger “neutral” zone.
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.