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In this article, we examine the significant weekly order flow and market structure developments driving XLU price action.
As noted in last week’s XLU Weekly, the highest probability path for this week was for neutral price discovery. This week’s primary did not play out as last week’s unsecured high failed, driving price higher to 64.03s, new all-time highs into Wednesday’s auction. Sell excess developed there, driving price lower in retracement to 62.84s, ahead of Friday’s close, settling at 62.81s.
NinjaTrader
03-06 September 2019:
This week’s auction saw buying interest, 62.56s, early in Tuesday’s auction, driving price higher through all-time high resistance, 62.81s, from last week. Price discovery higher developed into Wednesday’s trade, achieving the all-time high, 64.03s, early in Wednesday’s trade.
Structural sell excess developed there as buyers trapped, 63.86s/63.82s. Selling interest emerged, 63.80s-63.73s, before price discovery lower ensued to 63.35s into Wednesday’s close. Buyers trapped early in Thursday’s auction, 63.30s/63.25s, driving price lower, achieving a stopping point, 62.84s. Structural buy excess developed there as buying interest emerged, developing balance, 62.84s-63.19s, into Thursday’s close, where buying interest emerged, 62.97s-63.07s. Thursday’s late buyers did not hold the auction as sell excess developed on the uptick to 63.36s, driving price lower to 62.62s ahead of Friday’s close, settling at 62.81s.
NinjaTrader
This week’s auction did not see the primary expectation play out as last week’s unsecured high failed, resulting in price discovery higher to new all-time highs, where potential major structural sell excess is developing. Within the larger context, this week’s auction continues the buy-side bias as new all-time highs are formed.
Looking ahead, the focus into next week will center upon market response to this week’s buy-side breakout area, 62.80s-62.60s. Buy-side failure at this key area would target key demand clusters below, 61.40s-61.20s/61s-60.80s, respectively. Alternatively, sell-side failure at this key area would target key supply above, 63.60s-64s, and/or new all-time highs, respectively. From a structural perspective, the highest probability path near-term shifts sell-side within the context of a structural sell excess above as market structure and sentiment diverge. Within this near-term context, the intermediate term (3-6 month) remains buy-side barring buy-side failure at 61.32s.
It is worth noting that sentiment based on the S&P Utility Sector Bullish Percent Index has now returned to all-time high bullish sentiment. Stocks more broadly, as viewed via the NYSE, have seen a pause in recent bullish sentiment decline. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. While structure is buy-side, caution remains warranted in utility shares due to the divergence between sentiment in both the broader market and utility sector and the near-term sell excess in market structure. With sentiment again at all-time highs, it raises the question, who is left to buy?
StockCharts
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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