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 following last week’s initial pullback phase. The primary expectation did not play out as buying interest emerged early in Monday’s auction, halting the pullback before balance developed, 74.11s-72.34s, through the remainder of the week, settling 74s.


25-29 March 2019:

This week’s auction saw a stopping point develop in Monday’s auction, 72.53s. Buying interest in size, 72.76s-73.07s, emerged as last week’s late pullback was halted. A minor gap higher open developed in Tuesday’s auction, achieving the stopping point high, 74.11s, where minor sell excess developed. Balance developed, 74.11s-72.34s, from Tuesday through Thursday’s auctions.

Buying interest emerged into Thursday’s close, 73.28s-73.35s. Thursday’s late buyers held the auction as a gap higher open developed, driving price higher, achieving a stopping point, 74.03s, as the market challenged the weekly stopping point high into Friday’s close, settling at 74s. This week’s auction formed an unsecured high, 74.11s.

XLK Weekly I 29Mar19NinjaTrader

This week’s auction saw a pullback low develop following last week’s stopping point high. Two-sided trade developed most of the week as key resistance was challenged into week’s end amidst a structural unsecured high. This implies retracement higher amidst the current corrective phase is likely not finished. Within the larger context, the market likely remains in an uncompleted corrective phase.

Looking ahead, the focus into next week’s auction will center upon market response to this week’s unsecured high, 74.11s. Sell-side failure to hold at this resistance would target the key supply, 75s-75.25s and all-time high area, 76.27s, respectively. Alternatively, failure of the buy-side to drive price higher through this resistance would target key demand clusters below, 72.50s-72.10s/71.50s-70.70s. From a structural perspective, the highest probability path remains sell-side amidst the context of an initial corrective phase. Minor repair of the unsecured high or retracement may develop before the next sell-side sequence in the corrective phase. Within this near-term context, the intermediate term (3-6 month) bias remains neutral between 57.57s and 76.27s.

XLK Weekly II 29Mar19NinjaTrader

It is worth noting that sentiment based on the S&P Technology Sector Bullish Percent Index now reflects a dramatic move from the levels of extreme pessimism developed early January now to levels of extreme optimism. Stocks more broadly, as viewed via the NYSE, have now also seen a bounce from a similar level, albeit more muted. 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 within the context of a seasonal low period (December-January). The market has auctioned from levels of extreme pessimism and now trades near extreme optimism into 2017’s area of extreme bullish sentiment. Bullish sentiment in technology has reached new highs for the year but are reaching peak optimism. This occurs as bullish sentiment in the broad market has paused. This warrants caution regarding further buy-side potential for technology shares. New near-term price highs are developing as the availability of “greater fools” may be diminishing.

XLK Sentiment 29Mar19StockCharts

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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