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 lower. The primary expectation did not play out as two-sided trade developed, 79.70s-76.17s, ahead of Friday’s close, settling 78.28s.
12-16 August 2019:
This week’s auction saw minor price discovery lower in Monday’s auction from last week’s close, achieving a stopping point, 77.10s. Minor structural buy excess developed there, halting the sell-side sequence into Monday’s close. Aggressive price discovery higher developed early in Tuesday’s trade as a buyside breakout attempt above last week’s resistance developed. The market achieved the weekly stopping point high, 79.70s, where buyers trapped and narrow balance then ensued, 79.70s-78.77s, ahead of Tuesday’s close. Buying interest emerged, 79.31s-79.34s, into Tuesday’s close.
Tuesday’s late buyers failed to hold the auction as a gap lower open developed in Wednesday’s trade. Price discovery lower ensued into Thursday’s auction, achieving the weekly stopping point low, 76.17s. Structural buy excess developed there, halting the sell-side sequence before selling interest emerged, 76.84s/76.89s, into Thursday’s close. Thursday’s late sellers failed to hold the auction as a gap higher open developed in Friday’s trade, achieving a stopping point, 78.44s, ahead of Friday’s close, settling at 78.28s.
This week’s auction saw balance development, 79.70s-76.17s, following the recent initial corrective phase from all-time highs. Within the larger context, a corrective phase likely remains incomplete following the development of the new all-time high, 82.78s.
Looking ahead, the focus into next week’s auction will center upon market response to this week’s key supply, 78.50s-79.50s. Buy-side failure at this key supply would target key demand clusters below, 76s-75s/74.50s-73s, respectively. Alternatively, sell-side failure to drive price lower through this cluster would target key supply clusters overhead, 80s-81s/81.75s-82.60s, respectively. 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 bullish extreme sentiment decline to lows made in June 2019. Stocks more broadly, as viewed via the NYSE, are now exhibiting decline in bullish sentiment. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Caution remains warranted on the buy-side as market structure and sentiment imply potential for lower prices.
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.