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In this article, we examine the significant weekly order flow and market structure developments driving XLF’s price action.
As noted in last week’s XLF Weekly, the highest probability path for this week, based on market structure, was for price discovery lower. This primary expectation did play out as sell-side continuation developed into mid-week to 26.24s where structural buy excess emerged halting the sell-side sequence. A relief rally developed into Friday’s auction to 27.31s ahead of Friday’s close, settling at 27.17s.
NinjaTrader
05-09 August 2019:
This week’s auction saw a gap lower open in Monday’s auction as a sell-side breakdown developed through last week’s key support, 27.23s. Price discovery lower developed to 26.48s where buy excess emerged as sellers trapped, 26.56s, ahead of Monday’s close. Price discovery higher developed through Tuesday’s auction to 27.13s where buyers trapped into Tuesday’s close.
A gap lower open developed in Wednesday’s auction as sell-side continuation drove price to the weekly stopping point low, 26.24s. Structural buy excess developed as buying interest emerged, 26.39s-26.41s, halting the sell-side sequence. Price discovery higher developed through Wednesday’s trade to 26.86s where selling interest emerged, 26.77s-26.86s, into the close. Wednesday’s late sellers failed to hold the auction as price discovery higher developed to 27.27s into Thursday’s close where selling interest emerged, 27.24s, halting the buy-side sequence. Narrow balance developed in Friday’s trade ahead of the week’s close, settling at 27.17s.
NinjaTrader
This week’s auction saw sell-side continuation to 26.24s within the developing corrective phase. Within the broader context, the recent stopping point high, corrective phase, and declining bullish sentiment imply potential for further price discovery lower.
Looking ahead, the focus into next week’s auction will center upon market response to this week’s key demand cluster, 26.60s-26.24s. Buy-side failure at this key demand area will target key demand clusters below, 26.30s-25.90s/25.60s-25.10s, respectively. Alternatively, sell-side failure at this key demand area will result in price discovery higher to challenge key supply overhead, 27.80s-28.20s/28.60s-28.80s, respectively. The highest probability path near-term based on market structure is for price discovery lower within the context of an incomplete corrective phase. The larger intermediate-term bias (3-6 month) is now neutral provided failure at 28.14s holds.
It is worth noting that sentiment based on the S&P Financial Sector Bullish Percent Index now reflects a declining trend following the summer consolidation. Stocks more broadly, as viewed via the NYSE, are also now seeing a declining trend. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Following a period of consolidation in both the broad market and financials sentiment, the financials sentiment is now trending lower in tandem with the broader market sentiment implying caution is warranted regarding further upside potential.
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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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