In this article, we examine the significant weekly order flow and market structure developments driving XLU‘s price action.
The highest probability path for this week was for price discovery lower, provided 60.85s held as resistance. This week’s primary expectation did play out as the correction ensued in Monday’s auction, driving price lower to 56.64s. Buying interest emerged in Tuesday’s trade before balance developed, 56.64s-59.43s, ahead of Friday’s close, settling at 58.32s.
20-24 April 2020:
This week’s auction saw price discovery lower begin in Monday’s auction, achieving a stopping point, 58.15s, near key support where buying interest emerged into Monday’s close. Monday’s late buyers failed to hold the auction as the correction continued in Tuesday’s trade, achieving the weekly stopping point low, 56.64s. Buy excess developed there, halting the selloff before buying interest emerged, 57.20s-57.49s, into Tuesday’s close.
Tuesday’s late buyers held the auction as a gap higher open formed in Wednesday’s auction. Price discovery higher continued, achieving a stopping point, 59.43s. Buyers trapped there amidst sell excess, halting the rally into Wednesday’s NY close. Rotation lower developed through Thursday’s trade, achieving a stopping point, 57.31s, in Friday’s auction. A low volume buy response developed there, driving price modestly higher to 58.57s ahead of Friday’s close, settling at 58.32s.
This week’s auction did see the primary expectation play out as key resistance held. Within the larger context, the current rally from 43.44s to 61.78s is likely a relief rally within a larger incomplete corrective phase.
Looking ahead, the focus into next week centers upon response to the key supply cluster, 58.75s-59.43s. The market continues to seek resistance in a process known as price discovery. Sell-side failure at this key demand cluster would target key supply clusters above, 60s-60.85s/64.60s-68.83s, respectively. Alternatively, buy-side failure within this key cluster would target key demand clusters below, 54s-51s/48.33s-47.27s, respectively. From a structural perspective, the highest probability path near-term is buy-side, barring failure of 56.64s as support. Within this near-term context, the intermediate-term (3-6 month) bias is now neutral barring failure of 43.44s as support or 61.78s as resistance.
It is worth noting that bullish breadth based on the S&P Utility Sector Bullish Percent Index, like all other sectors, saw a historic collapse in breath from February into March before a historic rebound occurred. Stocks more broadly, as viewed via the NYSE, have seen recent similar behavior. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish breadth with structural confirmation. Intermediate-term structure shifts neutral. While the initial correction from all-time highs was severe, it remains most likely incomplete.
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.