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 was for price discovery higher within the context of a failed near-term corrective phase of recent weeks. This primary expectation did play out, albeit marginally, as a minor pullback developed early week to 26.91s, where buying interest emerged, driving the price higher to 27.46s in Wednesday’s auction as an unsecured high developed ahead of the early weekly close, settling at 27.34s.
14-18 April 2019:
This week saw early price discovery lower in Monday’s auction, as last Friday’s late buyers failed to hold the auction. Price discovery lower developed, achieving the weekly stopping point low, 26.91s, where minor buy excess developed as sellers trapped, 26.96s/26.98s, before balance development ensued into Tuesday’s auction. Buying interest emerged, 26.93s-26.99s, before price discovery higher developed in Tuesday’s trade to 27.38s.
Minor range extension higher developed in Wednesday’s trade, achieving the weekly stopping point high of 27.46s. Selling interest emerged there, halting the buy-side sequence. Narrow, two-sided trade developed, 27.46s-27.30s, in Thursday’s auction as the market traded flatly ahead of the early holiday close, settling at 27.34s.
This week’s auction saw minor balance early week within key supply before buying interest drove the price modestly higher to 27.46s, forming a structural unsecured high. Within the broader context, this week’s price discovery higher continues the buy-side phase as the market challenges the upper bound of the larger key supply area, 25s-27.50s.
Looking ahead, the focus into next week’s auction will center upon market response to this week’s unsecured high, 27.46s. Sell-side failure at this resistance area will result in price discovery higher to challenge key supply overhead, 27.50s-28.30s/28.75s-29s, respectively. Alternatively, buy-side failure at this resistance area will target key demand clusters below, 26.50s-26.10s/25.60s-25.10s, respectively. The highest probability path based on market structure is for price discovery higher. The larger intermediate-term bias (3-6 month) is now neutral, between 25.34s and 27.47s.
It is worth noting that sentiment based on the S&P Financial Sector Bullish Percent Index now reflects a bounce from the levels of extreme pessimism developed into early January. Stocks more broadly, as viewed via the NYSE, have now also seen a bounce from a similar level. 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. Following a period of consolidation in both the broad market and financials’ sentiment, financials’ sentiment has begun trending higher once again. While not yet at extreme optimism, current key supply, 25s-27.50s, is the first area of real challenge for the buyside.
Given the resumption in sentiment trend higher and confirming data within the associated derivative (the XLF sector futures contract), XLF will likely see price discovery beyond key supply, 25s-27.50s, in the intermediate term (3-6 months) before levels of extreme bullish sentiment and leveraged capital positioning are present.
Sharedata Futures, Inc.
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.