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The Financial Sector’s New Short-Term Technical Analysis Look

The most closely followed of the financial sector’s ETF’s — the XLF SPDR fund — had a significant technical analysis event in early July. On the daily chart of its price movement, the 50-day moving average crossed below the 200-day moving average — a possible distant early warning sign for all of the bank stocks and bank-related stocks out there.

Studying patterns on price charts allows us to see what investors are moving toward or away from — that’s trend — and tells us where so many buyers or sellers show up that a potential pivot in the other direction may take hold. The advantage, if there is one, stems from the technical’s analyst’s decision to ignore what might be misleading news items and focus solely on price movement.

And that brings us to the chart of the XLF:

I’ve circled in the red where the 50-day moving average recently crossed below the 200-day moving average. Basically speaking, this technical analysis event indicates the amount of selling in the sector may soon affect the long-term upward direction of trend. That red dotted line which connects the May low with the late June/early July lows might be a support level — a close or 2 below that level would be another negative issue for the uptrend.

For perspective, compare this chart to the chart for the same period of the widely followed S&P 500 ETF:

You can see that the 50-day moving average remains well above the 200-day moving average — so far, the uptrend is not threatened. The price just took out the previous resistance level at 278 where it had peaked in March and June. Now, the challenge will be the 284 level from January. By comparing this chart to the XLF chart you can get a feel for how weak the financials are, relatively speaking.

Here’s a look at the price chart of the XLF ETF based on the monthly high, low and close:

Looked at from the standpoint of the monthly prices, the financial sector still looks healthy: that is, the uptrend is clearly intact. The 50-day moving average remains above the 200-day moving average. Price remains above the long-term uptrend line that connects the 2009 crisis low with the 2016 low. If the ETF closed below that line, it might suggest problems for a continuing uptrend.

For a different kind of longer-term perspective, here’s the old-school point-and-figure chart, where x’s are up closes and o’s are down closes:

On this chart, the uptrend off of the 2009 financial crisis low remains firmly intact. The price would have to close below that 14/13.50 level — under the blue uptrend line — to indicate the breaking of trend.

That’s some technical analysis — if you prefer looking at fundamentals, I wrote about identifying value stocks right here and here with no use of price charts.

I do not hold positions in these investments. No recommendations are made one way or the other.  If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.

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