XLU Weekly: Minor Probe Higher To New All-Time Highs, 59.07s, Sell Response And Rotation Lower To 57.64s – Utilities Select Sector SPDR ETF (NYSEARCA:XLU)

In this article, we examine the significant weekly order flow and market structure developments driving XLU price action.

As noted in last week’s XLU Weekly, the highest probability path for this week was for price discovery higher, provided last week’s buy-side breakout area, 58.50s-58.70s, held as support. This week’s primary expectation played out, only marginally, as balance development unfolded early week at/near the breakout area. A buy-side breakout attempt developed to new, all-time highs, achieving the stopping point high, 59.07s, where selling excess developed, driving price lower back into prior balance to 57.64s, closing at 58.17s.

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25-29 March 2019:

This week saw balance development in Monday’s trade, 58.30s-58.72s, within the last week’s buy-side breakout area. Buying interest emerged early in Tuesday’s auction, 58.87s, as a constricted buy-side breakout developed. A minor probe higher developed, achieving a new all-time high, 58.99s, before buying interest emerged, 58.88s/58.96s, into Tuesday’s close.

Tuesday’s late buyers failed to hold the auction into Wednesday’s trade as a minor probe higher to 59.07s resulted in structural sell excess. The trapped buyers failed as price discovery lower developed back into last week’s balance. Selling interest emerged early in Thursday’s auction, 58.30s-58.20s, driving price lower in sell-side continuation, achieving a stopping point, 57.66s as buying interest emerged there late in Thursday’s auction. A minor probe lower developed early in Friday’s auction, achieving the weekly stopping point low, 57.64s, as sellers trapped, halting the sell-side sequence. Short covering inventory adjustment developed to 58.24s as ahead of Friday’s close, settling at 58.17s.

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This week’s auction did not see the primary expectation play out in a material way. Balance development at last week’s breakout area occurred before a false buy-side breakout to 59.07s. Selling interest emerged, halting the buy-side phase, driving price lower in a sell-side corrective phase to 57.64s.

Looking ahead, the focus into next week will center upon market response to this week’s stopping point low, 57.64s, within the key demand cluster. Buy-side failure at this key support area would target key demand clusters below, 57.40s-57.10s/56.80s-56.40s. Alternatively, sell-side failure at this week’s pullback support area would target key overhead supply, 58.80s-59.10s. This week’s stopping point high implies a potential structural stopping point. From a structural perspective, the highest probability path shifts sell-side following the failure of this week’s buy-side breakout to result in acceptance higher. It is also worth noting XLU closed lower this week, the first instance of this in the last twelve weeks. Within this near-term context, the intermediate term (3-6 month) has shifted buy-side with acceptance above 57.32s. Market behavior in this area in coming days and weeks remains structurally significant.

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It is worth noting that sentiment based on the S&P Utility Sector Bullish Percent Index now reflects a bounce from the levels of neutral sentiment developed into early January. Stocks more broadly, as viewed via the NYSE, have also seen rising bullish sentiment from the December 2018 low. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Within the context of December 2018’s correction, the market developed a stopping point low within prior key demand. Subsequently, price discovery higher back to major resistance and new all-time highs have developed. The market has auctioned from levels of neutral sentiment to extreme optimism as price makes new all-time highs. Sentiment in the broad market has paused as utilities now sees extreme optimism. This development warrants caution regarding further buy-side potential for utility shares. While higher prices continue, the bullish sentiment in this sector stands at extreme optimism, raising the question, from where will the “greater fools” come next?

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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.