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 lower within the context of an uncompleted corrective phase. This week’s primary expectation did not play out as balance development unfolded early week at major resistance before a failed sell-side breakdown in late Wednesday/early Thursday’s trade resulted in price discovery higher to 61.57s into Friday’s auction, closing at 61.38s.
12-16 August 2019:
This week’s auction saw minor price discovery lower in Monday’s auction to 60.44s as last week’s settlement held. Price discovery lower continued into Tuesday’s trade, achieving a stopping point, 60.38s. Minor structural buy excess developed there, driving price higher within balance to 61.18s, testing key resistance early in Wednesday’s auction. Buyers trapped, 61.05s, amidst minor sell excess, driving price lower to 60.13s as selling interest emerged into Wednesday’s close.
Wednesday’s late sellers failed to hold the auction as price discovery higher ensued early in Thursday’s auction, driving price higher to 61.07s. Narrow balance ensued, 61.07s-60.61s, before buying interest emerged, 61.07s-61.26s, into Thursday’s close amidst a buy-side breakout attempt. Minor price discovery higher developed to 61.57s ahead of Friday’s close, settling at 61.38s.
This week’s auction did not see the primary expectation play out as balance development and a failed sell-side breakdown from there ultimately resulted in price discovery higher to new, all-time highs. Within the larger context, balance development continues at all-time highs with no secured high (implying buy-side activity has not been shut off).
Looking ahead, the focus into next week will center upon market response to this week’s buy-side breakout area, 61s-61.20s. Sell-side failure at this key area would target new all-time highs, 62.55s/63.48s-64.05s, respectively. Alternatively, buy-side failure at this key area would target key demand clusters below, 60.45s-60.15s/59.40s-59s, respectively. From a structural perspective, the highest probability path near-term is buy-side following this week’s buyside breakout. Within this near-term context, the intermediate term (3-6 month) remains buy-side barring buy-side failure at 58.94s (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.
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.