XLE Weekly: Probe Higher To 68.81s, Sell Response There And Pullback To 65.64s Into Week’s End – Energy Select Sector SPDR ETF (NYSEARCA:XLE)

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

As noted in last week’s XLE Weekly, the primary expectation for this week’s auction was for price discovery higher. This week’s primary expectation played out, albeit marginally, as a buy-side breakout developed early week to 68.81s, where selling interest emerged halting the buy-side sequence, driving price lower to 65.64s within key demand ahead of week’s end, closing at 66.22s.

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21-26 April 2019:

This week’s auction saw price discovery higher in Monday’s auction as last Thursday’s late sellers failed to hold the auction. Buying interest emerged, 67.74s-67.81s, driving price higher into Tuesday’s auction. The market achieved the weekly stopping point high, 68.81s, early in Tuesday’s trade. Selling interest emerged, 68.66s, amidst development of structural sell excess halting the buy-side sequence. Buying interest emerged, 64.86s-68.55s, into Tuesday’s close.

Tuesday’s late buyers failed to hold the auction as a liquidation break developed in Wednesday’s trade. Price discovery lower developed into Thursday’s auction, achieving a stopping point, 66.94s, where buy excess halted the sell-side sequence. Balance developed, 66.94s-67.64s, through Thursday’s auction, as buying interest emerged, 67.11s, into Thursday’s close. Thursday’s late buyers failed to hold the auction as a gap lower open developed in Friday’s trade. Price discovery lower developed achieving the weekly stopping point low, 65.64s, where buy excess developed and buying interest followed, 65.94s-65.81s, ahead of Friday’s close, settling at 66.22s.

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This week’s auction saw buying interest early week drive price modestly higher to 68.81s in a false buy-side breakout. Selling interest emerged, driving price lower back into prior range to 65.64s within key demand in an initial corrective phase from the stopping point high.

Looking ahead, the focus into next week will center upon response to key demand, 65.65s-66s. Sell-side failure to drive price through this area will target key supply clusters overhead, 66.90s-67.70s/68.40s-68.80s. Alternatively, buy-side failure to drive price higher will target key demand clusters below, 64.10s-63.30s/62.65s-61.85s, respectively. From a structural perspective, the highest probability path this week is buy-side within the context of a potential stopping point high and corrective phase developing.

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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. Following a period of consolidation in both the broader market and the energy sector, energy sentiment has now begun trending higher once again. 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.

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Given the resumption in sentiment trend higher and confirming data within the associated derivative (the XLE sector futures contract), XLE will likely see price discovery beyond key supply, 64s-68s, in the intermediate term (3-6 months), before levels of extreme bullish sentiment and leveraged capital positioning are present.

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.