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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 price discovery higher following last week’s buy-side breakout. This week’s primary expectation played out as buy-side continuation began early in Monday’s auction, ultimately achieving a new, all-time high into Friday’s auction, before sell excess developed, driving price lower to 61.17s ahead of Friday’s close, settling at 61.48s.
NinjaTrader
19-23 August 2019:
This week’s auction saw buy-side continuation in Monday’s auction as sellers trapped and price discovery higher developed, achieving a stopping point, 61.98s. Buyers trapped there ahead of Monday’s close as balance developed, 61.98s-61.41s, through Tuesday’s auction. Buying interest emerged, 61.66s/61.68s, into Tuesday’s close. Tuesday’s late buyers held the auction, driving price modestly higher in Wednesday’s trade to 62.08s where buying interest emerged into Wednesday’s close.
Wednesday’s late buyers failed to hold the auction as minor sell excess developed early in Thursday’s trade, driving price lower in retracement to key support, 61.61s. Buy excess developed there before price discovery higher resumed to 62.22s into Thursday’s close. Buying interest emerged, 62.22s/62.28s, early in Friday’s auction, driving price modestly higher, achieving the weekly stopping point high, 62.46s (new all-time highs). Structural sell excess developed there, halting the buy-side sequence before aggressive price discovery lower developed to 61.17s ahead of Friday’s close, settling at 61.48s.
NinjaTrader
This week’s auction did see the primary expectation play out as price discovery higher developed to new all-time highs before structural sell excess halted the buy-side sequence. Within the larger context, this week’s auction reflects a potential shift as the high (unlike the highs of the last 2 months or so) forms with excess (implying the buy-side sequence has been shut off).
Looking ahead, the focus into next week will center upon market response to this week’s key supply, 62s-62.40s. Buy-side failure at this key area would target key demand clusters below, 61-60.80s/60.45s-60.15s, respectively. Alternatively, sell-side failure at this key area would target new all-time highs. From a structural perspective, the highest probability path near-term is neutral following this week’s structural stopping point high. Within this near-term context, the intermediate term (3-6 month) remains buy-side, barring buy-side failure at 61.32s (which held this week).
It is worth noting that sentiment based on the S&P Utility Sector Bullish Percent Index is now trending lower from extreme bullish sentiment. Stocks more broadly, as viewed via the NYSE, have also seen declining bullish sentiment. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. While structure is buy-side, caution is warranted in utility shares due to the divergence between sentiment in both the broader market and utility sector and the market structure.
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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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