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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 lower following last week’s failure to drive price above key supply, 67.42s-66.80s. This week’s primary expectation did not play out as retracement to key demand saw buying interest emerge before driving price higher to 67.69s into week’s end, settling at 67.61s.
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01 – 05 April 2019:
This week’s auction buying interest early in Monday’s trade as last Friday’s late sellers failed to hold the auction. Price discovery higher developed, achieving a stopping point, 67.13s, where selling interest emerged within prior key supply overhead. A minor structural sell excess developed to 67.22s early in Tuesday’s auction, driving price lower to 66.37s. Buying interest emerged, 66.54s, into Tuesday’s close.
Tuesday’s late buyers failed to hold the auction in Wednesday’s trade as sell-side continuation developed to 65.66s. Selling interest emerged, 65.89s, into Wednesday’s close. Minor probe lower developed early in Thursday’s auction, achieving the weekly stopping point low, 65.61s, within key demand below. Sellers trapped there, halting the sell-side sequence. Rotation higher ensued through Thursday’s trade to 66.49s, before buying interest emerged, 66.36s, in Thursday’s close. Thursday’s late buyers held the auction as a gap higher open developed in Friday’s auction before buying interest drove price higher through key supply, achieving the weekly stopping point high, 67.69s, ahead of Friday’s close, settling at 67.61s.
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This week’s auction saw balance trade between key supply and demand until a buy-side breakout developed in Friday’s auction to 67.69s. Within the broader context, this week’s auction was a buy-side breakout attempt above the recent multi-week balance, 66.93s-63.31s.
Looking ahead, the focus into next week will center upon response to this week’s buy-side breakout area, 67.20s-66.80s. Sell-side failure to drive price lower through this area will target key supply cluster overhead, 68.50s-69.25s. Alternatively, buy-side failure to drive price higher will target key demand clusters below, 65.60s-64.80s/64s-63.50s, respectively. From a structural perspective, the highest probability path this week shifts buy-side following the buy-side breakout above multi-week balance.
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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. Both the broader market and the energy sector are now in a state of consolidation in terms of sentiment. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Within the context of a seasonal low period (December-January), the market developed key structural support following the momentum low of November 2018. Sentiment turned up this week within its mid-range. Should further bullish sentiment emerge, XLE will likely see price discovery beyond key supply, 64s-68s.
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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.
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