XLF trade ideas
OPENING: XLF 23/24 SKINNY SHORT STRANGLE... for a 1.78 credit.
Notes: A naked variation on my trading idea post. (See Below). Looks like that would still be a good setup: paying 1.46 at the mid with a max loss of 1.54, so basically a risk one to make one ... .
Watch this trend line for signs of a banking sector recoveryThe financial sector's technicals are looking more bullish after earnings week, with the MACD above the signal line and the price above a volume support. Banks reported mixed financial results, with sales 4.3% above Street expectations, but earnings 3.3% below Street expectations. The earnings came in weak mostly because banks set aside big piles of cash to guard against future loan losses. So overall, the reports were quite strong and banks look better protected against the coming solvency crisis.
I expect the narrative around banks to remain somewhat negative anyway, with CMBS delinquency rates up 3x in 3 months to 10.32%; Moody's downgrade-to-upgrade ratio near the highest ever; residential mortgage forbearance up to 8.7%; and the annualized corporate default rate higher than the 2009 level. These numbers appear to be worsening every month.
However, any news of stimulus from Congress could allay solvency fears for the near-term and send bank stocks into a new uptrend. Banks have currently made a downward-sloping trend line from their February peak, and with stimulus likely to be announced by the end of July, I think we're likely to see a move upward through the trend line this month. I don't know that I'm prepared to invest a bunch of money in bank shares with the narrative so negative right now, but August 31 calls on XLF at the $24 strike look like a reasonably low-risk gamble, especially if we get a trend line break. (I'd consider taking a real, long-term stake in XLF shares if it retested the $20 or $18 levels.) A couple ways to play this would be to alert the trend line and enter after a break, or to alert the supports at $23.50 or $23 and enter when it hits those supports. You'll get better prices on option calls if you buy the supports rather than a confirmed break of the trend line, of course.
(P.S. Goes without saying, but this is an idea only and not investment advice.)
XLF not constructiveBig banks have reported for the quarter, and as expected those with a strong trading arm ($MS, $GS) strongly outperformed the ones with a stronger retail presence ($BAC, $WFC), with $JPM being the 'best of both worlds'.
Nevertheless, the 10 years does not tell a story of recovery, nor increased loan loss provisions do. Last quarter's performance was mostly driven by volatility in fixed income and equities, and it is not likely to be repeated.
If you want to be exposed to $XLF, suggest covered calls on the long side due to government stimulus sustaining the markets.
The sector is likely to go down fast if the economy is left to itself and data continues to deteriorate.
XLF long set upXLF is entering the zone where it is set to outperform QQQ, this typically means markets will be going up with sectors like XLF outperforming. After XLF previous spike to test the 200dma it has corrected for 30 days in a falling wedge pattern and sitting at a nice support. Earnings for banks are next week and the charts support a bullish reaction. Gap will at around $27-$30 as targets.
!XLF Short Re-Entry:13:23:06 (UTC) Thu Jul 16, 2020!XLF Short Re-Entry:13:23:06 (UTC) Thu Jul 16, 2020
!XLF Re-Entry: 13:04:38 (UTC) Tue Jul 14, 2020With YoY% declines from some of the biggest financial institutions in the world today, I will be taking the XLF sector ETF short today.
T-Note Shorts Comfort Financials Financials (XLF) are down 22% so far this year, one of the worst performing sectors second to Energy (XLE). Financials report Q2 earnings this week, kicking off today with JP Morgan, Wells Fargo, First Republic Bank and Citi. It’s worth noting that Smart Money Hedgers are heavily net short the 10 Year T-Note which could offer some ground for the financial sector (XLF) and give it the nudge it desperately needs to start heading north. Current bets on rising rates will also add fuel to this theory.
Earnings tomorrow (15/07/2020) Bank of New York Mellon, PNC Financial Services, US Bancorp, Goldman Sachs Group. Wednesday 16th July starts with Bank of America, Charles Schwab Corp, Truist Financial Corp and Morgan Stanley. And to close the week on Friday we have Citizens Financial Group, Regions Financial Corp, Progressive Corp, BlackRock Inc and State Street Corp.
XLF at a Decision PointThe XLF is a major decision point. It's at the end of a wedge within another wedge. The solid green line at the bottom is flag support. XLF needs to maintain that flag support or it will take a trip to below $22.
Bank earnings are tomorrow. JP Morgan and Wells Fargo will set the tone for what earnings will be like. RTY and ES' fate now lies with the financial and transportation sectors.
That's why I didn't trade today. Too much uncertainty to what will happen with JP Morgan and Wells Fargo in post-earnings. Something tells me the pullback is not over yet.
Financials Looking Good $XLFAMEX:XLF
Financials are looking good mostly thanks to Uncle Jerome's aggressive stimulus plan and banks of course "being too big to fail". With that said, there are several key players ($GS $JPM) in this space that are also at the forefront of financial services innovation and strong cash flows/liquidity. All of this paints a pretty bullish fundamental for the short/immediate term and with the additional announcement of a potential round 2 of stimulus checks... Money Printer go Brrrrrrrr?
From a technical standpoint, we are are about to breakout from a symmetrical triangle to the upside. My target is $25 with movement happening by 8/6. Hopefully the mods leave this up for you guys.
- PennyBag
TRADE IDEA: XLF AUGUST 21ST 20/23/24/27 IRON FLY... for a 1.51 credit (.38 at 25% max).
Notes: 5 out of XLF's top 10 holdings announce next week, so this is a way to get a piece of that volatility without getting into single name, with a classic risk one to make one iron fly setup. I've split the shorties across current price, but would look to take profit at 25% max, as you would with a short straddle/iron fly. Naturally, you may have to adjust the strikes, depending on what XLF does early in the week.
For those who like to trade naked, the August 21st 23/24 skinny short strangle was paying 1.90 (.48 at 25% max) as of Friday close.
XLF Analysis XLF Bullish Confluence across TA, Dark Pool orders, Options Flow and Volume ( Contracts to buy 7/17 25c or 10/16 28c)
Volume Before Close: 1min-2.633M (1st), 5min-5.298M (1st), 15min-9.295M (3rd)
Dark Pool Orders: 6 Orders (144 Million)
Options Flow: 9 Sweep Orders (654,000) 3 Block Orders (365,000)
No Bearish Flow
TA Below
The most important picture of allWhile most traders and market analysts seem to be glued to the short term, I believe this longer term picture of the financial sector is crucial. In my eyes, the structure that has formed since the Feb 2020 top greatly resembles the topping pattern of the GFC with respect to price action and RSI divergence, except it is clearly a larger structure. Therefore, the most likely scenario is that the market is about to resume its descent with much greater intensity within a couple weeks. If we are lucky, then it will eventually be supported by the 2008 lows. However, I do see the possibility that this will become a degree of crash greater than the GFC, comparable to 1929 or even greater than 1929, especially because the initial selloff volume spike was so large.
IMHO, the most unlikely scenario is this 'V' shaped new bull market scenario that the majority seem to be adopting now. Economic fundamentals are too trashed, and bullish sentiment and speculation is much too extreme for that to happen right now. There are basically 6 stocks holding up the entire market at this moment and they are about to top according to Elliott analysis. This entire rally seems to be all hype with no reality priced in.
XLF also looks good on dailyBut likely up first then down and close the week in green. So don't be too greedy on weeklies.
