In this article, we examine the significant weekly order flow and market structure developments driving [[XLK]] price action.
As noted in last week’s XLK Weekly, the highest probability path for this week was for price discovery higher following last week’s buy-side breakout above near-term balance. The primary expectation did play out as balance trade developed through mid-week at key resistance before buying interest emerged, driving price higher to 76.81s, a new all-time high ahead of Friday’s close, settling at 76.81s.
07-12 April 2019:
This week’s auction saw a buy excess develop, 75.42s-75.65s, in Monday’s trade following an initial flush lower from last week’s close. Rotation higher developed through Monday’s trade to 76.25s within key supply. Buyers trapped there into Monday’s close. Minor pullback developed in Tuesday’s auction to 75.68s where buying interest emerged, 75.70s-75.90s, into Tuesday’s close.
Tuesday’s late buyers held the auction as price discovery higher developed Wednesday, achieving a stopping point, 76.56s, early in Thursday’s trade. Again, minor pullback ensued Thursday, within the context of a buy-side trend to 76.12s where buy excess developed into Thursday’s close. A buy-side breakout developed in Friday’s auction, achieving the weekly stopping point high, 76.81s, ahead of Friday’s close, settling at 76.81s.
This week’s auction saw failure of the prior key supply as price discovery higher continued to 76.81s. The market now trades to new, all-time highs. Within the larger context, a structural buy-side breakout attempt remains underway.
Looking ahead, the focus into next week’s auction will center upon market response to this week’s unsecured high, 76.81s. Sell-side failure to hold at this resistance would target new, all-time highs. Alternatively, buy-side failure would target key demand clusters below, 75.90s-75.70s/75.20s-75s, respectively. From a structural perspective, the highest probability path shifts buy-side within the context of a near-term buy-side breakout. Within this near-term context, the intermediate term (3-6 month) bias remains neutral between 57.57s and 76.27s. Response to the breakout is of major structural significance in coming weeks.
It is worth noting that sentiment based on the S&P Technology Sector Bullish Percent Index now reflects a dramatic move from the levels of extreme pessimism developed early January now to levels of extreme optimism. Stocks more broadly, as viewed via the NYSE, have now also seen a bounce from a similar level, albeit more muted. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Following the momentum low of November 2018, the market developed a stopping point low which now serves as meaningful support within the context of a seasonal low period (December-January). The market has auctioned from levels of extreme pessimism and now trades near extreme optimism into the multi-year area of extreme bullish sentiment. Bullish sentiment in technology has reached new highs for the year as bullish sentiment in the broad market has paused. This warrants caution regarding further buy-side potential for technology shares. New all-time price highs are developing as the availability of “greater fools” may be diminishing.
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.