XLE Weekly: Pullback Early Week Through New Year’s To 56.15s, Buying Interest And Price Discovery Higher To 60.05s

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

30 December 2018 - 4 January 2019:

As noted in last week’s XLE Weekly, the primary inference for this week was neutral/buy-side activity within the intermediate term sell-side bias. This week’s auction saw balance development early week, 57.75s-56.15s, before buying interest emerged after New Year, driving price higher to 60.05s, closing the week at 59.87s.

This week saw two-sided trade, 57.75s-56.67s, in Monday’s liquidity lowered holiday auction. A minor pullback developed following New Year’s holiday to 56.15s where buying interest emerged, driving price aggressively higher to 58.86s. Buyers trapped, 58.71s, in Thursday’s auction, driving price lower in retracement to 57.24s, where sellers trapped as buy-side rotation back to 58.71s developed ahead of Friday’s auction.

Buying interest continued into Friday’s auction through Thursday’s stopping point high, driving price higher in buy-side continuation. The market achieved the stopping point high, 60.05s ahead of Friday’s close, settling at 59.87s.

XLE Weekly I 04Jan19NinjaTrader

This week’s auction saw price discovery higher, consistent with our primary expectation, as price discovery higher developed to 60.05s into week’s end. Within the broader context, this week’s buy-side continuation continues to support the development of a structural stopping point low during the last week of December 2018.

Looking ahead, the focus into next week will center upon market response to key supply, 59s-60.50s, following the stopping point low development. As the stopping point low has held as support, and price discovery has developed toward key supply overhead, balance development would be the primary expectation based on market logic. From a structural perspective, the highest probability path this week remains buy-side. Within this near-term context, the intermediate term (3-6 month) bias remains sell-side.

XLE Weekly II 04Jan19NinjaTrader

It is worth noting that sentiment based on the S&P Energy Sector Bullish Percent Index now reflects postures of extreme pessimism. From a sentiment perspective, the market remains in an area of bearish extreme. Stocks more broadly, as viewed via the NYSE, have now also reached a posture of extreme pessimism. Asymmetric opportunity develops when the market exhibits extreme bullish or bearish sentiment with structural confirmation. Within the context of a seasonal low period (December-January), the market has developed a potential stopping point low within prior key demand. It is now possible that the recent market activity has formed a price low following the momentum low of November 2018 which could serve as meaningful support.

XLE Sentiment 04Jan19StockCharts

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.