A Look At XLF Financials Sector

We need to pay attention to what the Financial Sector is doing on its charts because it has a tendency to lead the broader market, and many eyes are focused on news from this sector.  Let’s take a quick look at the Daily and Weekly charts of the Financial Select Sector SPDR ETF (XLF).

XLF Weekly:

A quick overview tells us we don’t want our portfolios anywhere near the Financial sector, at least from a trend perspective.  Price continues to make lower lows and lower highs while the moving averages are in the most bearish orientation possible.

Rather than making a positive divergence like the broader indexes did in November, the XLF weekly momentum actually made new lows, hinting that new price lows are yet to come.  The momentum oscillator is ‘rolling over’ and cracking through the red ‘trend’ line at the moment.

From a cursory glance, it would appear that we’re in the down-swing now that will break the November lows, which bodes negatively for the broader market.  Let’s drop down to the daily chart for more insights.

XLF Daily:

Again, we see a similar picture in that the trend is clearly confirmed as down, the moving averages are in the most bearish orientation possible, and price appears to be in a downswing that will take us to new lows in 2009.

We did have a positive momentum divergence in November, but that was quickly worked out and now no longer has much influence on the price action as sellers are claiming the momentum again and could push us to a new momentum low as price falls to test support at the November lows.

Also, you can draw various trendline interpretations, but what I’ve down is shown a rising blue trendline has been broken to the downside and confirmed as resistance to the upside (just shy of the falling 50 day EMA).

Also, I have us breaking down out of a descending triangle which is classically a bearish pattern with a measuring objective that takes us down to the November lows.

There is absolutely no further support to stop us from hitting the sub-$9 per share level and odds are that momentum (sellers) will continue, forcing a new price low in 2009 which most likely would precede a new price low in the S&P 500 (^GSPC) and other US Equity Indexes.

Continue to study the XLF charts and apply your own analysis and be aware of what it might mean for the broader market.

Subscribe by RSS Subscribe by Email