In this article, we examine the significant weekly order flow and market structure developments driving XLF price action.
The highest probability path for this week, based on market structure, was for price discovery higher. This primary expectation did not play out as balance developed early week before rotation higher to test key resistance ahead of Friday’s close, settling 28.32s.
07-12 July 2019:
This week’s auction saw selling interest early in Monday’s trade as buyers failed to hold the auction, driving price modestly lower to 27.94s before selling interest emerged, 28.02s-28s, into Monday’s close. Monday’s late sellers held the auction, briefly, as a sell-side breakdown attempt occurred early in Tuesday’s trade, driving price lower to 27.81s. Structural buy excess developed there, 27.81s-27.94s, rejecting the low.
Price discovery higher then developed early into Wednesday’s trade to 28.23s, testing last week’s resistance. Structural sell excess developed there, halting the buy-side sequence, driving price lower to 27.93s, where buying interest emerged into Wednesday’s close. Wednesday’s late buyers held the auction as price discovery higher developed through Thursday’s trade into Friday’s auction, achieving the stopping point high, 28.30s, ahead of Friday’s close, settling at 28.32s.
This week’s auction saw balance development through mid-week at/near the 2019 high, pressing the high into week’s end as an unsecured high developed, 28.32s. Within the broader context, this week’s balance at the 2019 high and unsecured structure imply potential for price discovery higher.
Looking ahead, the focus into next week’s auction will center upon market response to this week’s unsecured high, 28.32s. Sell-side failure at this resistance area will result in price discovery higher to challenge key supply overhead, 28.75s-29.07s/29.50s-29.80s, respectively. Alternatively, buy-side failure at this week’s resistance will target key demand clusters below, 26.30s-25.90s/25.60s-25.20s, respectively. The highest probability path near-term based on market structure is for price discovery higher. The larger intermediate term bias (3-6 month) is now potentially shifting buy-side with price acceptance above 28.14s.
It is worth noting that sentiment based on the S&P Financial Sector Bullish Percent Index now reflects a bounce from the pullback level of June. Stocks more broadly, as viewed via the NYSE, have now also seen a bounce from a similar level. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Following a period of consolidation in both the broad market and financials’ sentiment, financials’ sentiment has begun trending higher once again implying further buy-side potential before extreme bullish sentiment is achieved.
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.