XLK Weekly: Selling Interest At All-Time Highs, Correction Ensues – Technology Select Sector SPDR ETF (NYSEARCA:XLK)

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

The highest probability path for this week was for price discovery higher following last week’s unsecured high, 82.78s. The primary expectation did not play out as selling interest emerged in Monday’s auction at the all-time high before balance development unfolded into mid-week followed by aggressive price discovery lower to 78.33s ahead of Friday’s close, settling at 78.99s.

29 July-02 August 2019:

This week’s auction saw selling interest, 82.61s-82.58s, in Monday’s auction at all-time highs. Monday’s late sellers held the auction as narrow balance developed, 81.79s-82.54s, through Tuesday’s trade into Wednesday’s auction. Buyers trapped in Wednesday’s trade, 82.11s, as an aggressive sell-side breakdown attempt developed to 79.92s. Structural buy excess developed halting the sell-side sequence.

Retracement continued into Thursday’s auction, achieving a stopping point, 82.62s, at/near major resistance. Self-similar selling interest emerged there again as aggressive price discovery lower developed to 79.95s before a minor uptick developed to 80.75s ahead of Thursday’s close where buying interest emerged, 80.67s. Thursday’s late buyers failed to hold the auction as a gap lower open developed in Friday’s trade, driving price lower to 78.33s. Trapped sellers emerged amidst minor structural buy excess, halting the sell-side sequence ahead of Friday’s close, settling at 78.99s.

NinjaTrader

This week’s auction saw selling interest at key resistance (all-time highs) as balance developed there before aggressive sell-side sequence developed late in the week. Within the larger context, a potential stopping point high has developed as potential failure occurs at the spring 2019 breakout area, 79.70s.

Looking ahead, the focus into next week’s auction will center upon market response to this week’s key support, 78.50s-79.50s. Buy-side failure at this cluster would target key demand clusters below, 78.25s-77.75s/76.50s-76s, respectively. Alternatively, sell-side failure to hold at this cluster would target key supply clusters above, 80s-81s/81.75s-82.60s. From a structural perspective, the highest probability path near-term is sell-side within the context of a stopping point high development at all-time highs and an incomplete corrective phase. Within this near-term context, the intermediate term (3-6 month) bias now shifts to neutral (barring development of new highs).

It is worth noting that sentiment based on the S&P Technology Sector Bullish Percent Index has seen a rise to bullish extreme sentiment once again following the spring decline into June 2019. Stocks more broadly, as viewed via the NYSE, are now exhibiting a similar decline in bullish sentiment, albeit more muted. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. The data reveals such opportunities both on the buy-side and sell-side in January and April 2019, respectively. April-May’s caution regarding further buy-side potential for technology shares as price diverged with sentiment was justified. As sentiment once again reached bullish extreme into late July, buy-side caution was warranted.

StockCharts

When looking under the hood of XLK, the performance of the ETF hinges largely upon the behavior of two stocks, Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL). Together, they have accounted for 652 and 515 basis points of XLK’s return since the January 2019 low, respectively. Weakness in these shares will likely have a significant effect on XLK’s price action.

KoyFin

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.