In this article, we examine the significant weekly order flow and market structure developments driving XLE price action.

As noted in last week’s XLE Weekly, the primary expectation for this week’s auction was for price discovery lower, barring failure of 32.22s as resistance. This week’s primary expectation did not play out as rotation higher toward key support developed in Monday’s auction before a breakout developed in Tuesday’s trade to 34.02s where sellers trapped. Balance developed, 34.02s-32.02s, through Wednesday’s trade before buy-side continuation developed to 36.46s where selling interest halted the rally phase. Retracement developed to 32.61s where buy excess developed and buying interest emerged ahead of Thursday’s close, settling at 33.91s.

XLE Weekly 03Apr20

06-09 April 2020:

This week’s auction saw price discovery higher in Monday’s trade as last Friday’s late buyers held the auction. Price discovery higher continued to 31.62s near key resistance as buying interest emerged, 31.13s/31.43s, into Monday’s close. Monday’s late buyers held the auction as a gap higher open developed in Tuesday’s trade before achieving a stopping point, 33.87s. Buyers trapped there, halting the rally as retracement ensued to 32.02s, testing the breakout area into Tuesday’s close.

Tuesday’s late sellers failed to hold the auction as rotation higher developed to 34.33s where buying interest emerged into Wednesday’s close. Wednesday’s late buyers held the auction initially as another gap higher open developed in Thursday’s trade. Price discovery higher continued, achieving the weekly stopping point high, 36.46s, near the early March resistance level post-breakdown. Selling interest emerged amidst structural sell excess, halting the rally. Retracement ensued through Thursday’s trade, achieving a stopping point, 32.62s. Buy excess developed there amidst buying interest, halting the pullback ahead of Friday’s close, settling at 33.91s.

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XLE Weekly 09Apr20

This week’s auction saw a buy-side breakout above key resistance before the rally continued to 36.46s. Sell interest emerged there amidst sell excess, halting the rally phase as retracement ensued into the week’s end. Within the larger context, the market has formed a structural support in the wake of the recent historic selloff. This week’s rally was continuation from that low to the first major resistance area, 36.50s, following the historic breakdown of March 2020.

Looking ahead, the focus into next week rests on response to key supply, 35.75s-36.82s. Sell-side failure to drive price lower from key resistance will target key supply cluster above, 42s-44s, respectively. Alternatively, buy-side failure to drive price higher from this resistance will target key demand clusters below, 30.09s-28.95s/28s-27.09s, respectively. The highest probability path for next week is buy-side barring 32.62s failing as support. The larger context now shifts neutral as XLE trades off fifteen-year lows.

Looking under the hood of XLE, we see that its performance is really a tale of two stocks, Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM). They account for approximately 24% and 23% of the entire ETF, respectively. Further, their performance is responsible for -587bps and -1,026bps, respectively, of the XLE’s current one-year performance. As go Exxon and Chevron, so goes the XLE.

XLE Holdings 09Apr20

It is worth noting that breadth, based on the S&P Energy Sector Bullish Percent Index, trended higher in historic fashion following February-March’s historic collapse. Stocks more broadly, as viewed via the NYSE, see a similar posture. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Currently, conditions favor a neutral posture as the market found structural support, 22.88s, near late 2003 support followed by a rapid and substantial relief rally. The market approaches major structural resistance as breadth is now once again in the bullish extreme zone. The support formed in March is likely a momentum low formed before a final price low.

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XLE Breadth 09Apr20

The market structure, order flow, and breadth 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.