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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 following last week’s unsecured low, 62.85s. This week’s primary expectation did not play out as a false breakdown developed early week to 62.65s, where buying interest emerged, driving price higher to 64.58s, ahead of week’s end, closing at 63.75s.
12-17 May 2019:
This week’s auction saw a false sell-side breakdown early week, achieving the weekly stopping point low, 62.65s, as last week’s low was repaired. Buying interest emerged, 63.03s, into Monday’s close. Monday’s late buyers held the auction as price discovery higher back into prior balance developed in Tuesday’s trade, achieving a stopping point, 64.25s, near balance high. Minor sell excess developed, driving price lower into Wednesday’s open, achieving a stopping point, 63.19s.
Buy excess developed there, halting the pullback before price discovery higher resumed to 64.19s. Buying interest emerged, 64.17s, into Wednesday’s close. Wednesday’s late buyers held the auction as price discovery higher developed, achieving the weekly stopping point high, 64.64s, near key supply overhead. Selling interest emerged there, halting the buy-side sequence, as balance developed, 64.64s-63.81s, ahead of Friday’s close, settling at 63.75s.
NinjaTrader
This week’s auction saw minor range extension lower early week to 62.65s. Buying interest emerged, halting the sell-side attempt before a relief rally ensued to 64.64s. Within the larger context, this week’s stopping point low occurs within the context of the initial corrective phase from a likely structural stopping point high, 68.81s.
Looking ahead, the focus into next week will center upon response to this week’s key supply, 64.40s-64.65s, within the context of a likely completed initial corrective phase. Sell-side failure to defend this area will target key supply clusters overhead, 65.50s-65.70s/66s-66.50s. Alternatively, buy-side failure to drive price higher will target key demand clusters below, 63s-62.60s/61.20s-60.65s, respectively. From a structural perspective, the highest probability path this week is buy-side within the context of an incomplete corrective phase.
It is worth noting that sentiment based on the S&P Energy Sector Bullish Percent Index paused and turned down into early March following the bounce from the levels of extreme pessimism developed into early January. Stocks more broadly, as viewed via the NYSE, have now also seen a bounce from a similar level. Following a period of consolidation in both the broader market and the energy sector, energy sentiment trended higher into early May where a decline ensued that has now paused. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Currently, conditions favor a neutral bias.
StockCharts
Given the shift in sentiment trend lower, XLE will now likely struggle to see price discovery above prior key supply, 64s-68s, in the intermediate term (3-6 months). While there is currently no confirming data within the associated derivative (the XLE sector futures contract), levels of extreme bullish sentiment and leveraged capital positioning in this area would further confirm this expectation.
Sharedata Futures, Inc.
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.
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