XLF trade ideas
Retail traders are gun shy. XLF and XLP is leading the way...Retail investor who are looking for longs are largely gun shy and sidelined after this dramatic selloff. Choppiness in indices are keeping them there. Indices have not been able to clear a resistance, but both XLF and XLP have cleared above resistance levels. I expect the broader markets to follow XLF as inflation data is released.
I expect price action to be fast next week. As retail shortsellers are bagholding positions, the squeeze on the next leg up should force them to cut their losses.
XLF downside to 28.50 over the next year?Why do I think XLF may be a potential short?
There are many economic catalysts this year:
The Fed is monitoring interest rates and may still make adjustments. Some market consensus tools suggest 1-3 rate cuts this year (of 0.25% each), while some sources suggest that the economy is still resilient, and rates need to still be increased. Regardless of that, rates have historically been cut when something has broken and they need to re-stimulate the economy.
NY Community Bank has a fair amount of toxic assets on its books. While it had plenty of cash last year and was able to bail out other regional banks, it also holds an amount of commercial real estate debt, which was issued when interest rates were much lower. A large amount of it comes due this year, and now they may have difficulty servicing it. This is one example of how the bank defaults have not finished happening, and that last year was only a temporary solution.
Many large companies have recently posted massive layoffs, between 5 and 15% depending on the company. Most of it is in the tech sector. However, this indicates a slowing economy (despite recent numbers looking very good), and companies are proactively cutting the fat to save money. If they cannot grow their margins by increasing revenue, then they will look to cut costs. Commercial real estate is also likely to see a number of failures, for similar reasons (and this ties into the above reason).
The 10Y and 2Y interest rate yield curve is still inverted. Historically, once it uninverts, rates tend to rise rapidly and the equity market trends downward sharply. This is very likely to happen again (there was only one time in the US where this was not true), but whether this occurs in a month, in a year, or in a decade is anyone's guess. But it is still a potential catalyst.
In light of the above reasons, one potential way to play the downside is to enter a bearish spread. I am choosing XLF specifically because it is a low volatility sector, which means that put contracts are much less expensive.
Around the 31.00 level, we see support and resistance from around the year 2020, breaching it in 2021, and finding support throughout 2022; it is natural, then, that this acts as a pivot that can be broken through in a bear market.
Using fibonnaci levels from the previous 2020 low to the all time high, we find the midpoint at 29.60, which is another possible level.
Finally, using ATR and projecting the sqrt(ATR x N), we can estimate roughly where the price might fall by a certain date. From the previous ATH, this gives us a range of 26 to 56 (approximately). From the current closing price, we get 32 to 46. However, going two units away (solid teal line) brings this to 25 on the low side. This overlaps towards the one-unit low range from the previous ATH.
If I had to pick a specific range for Jan 2025, I would estimate the bear case to be 27 to 29 dollars, based solely on market technicals.
US Banks Set a Bullish Tone at the Start of Earnings SeasonUS Banks Set a Bullish Tone at the Start of Earnings Season
Company earnings reports for the second quarter will be a crucial driver of stock market movements in the coming weeks. Traditionally, the largest banks kick off the earnings season, and their performance indicators today are setting a bullish tone.
For example:
Bank of America (BAC), report published on 16th July:
→ Earnings per share: actual = $0.83, expected = $0.797;
→ Gross income: actual = $25.37 billion, expected = $25.22 billion;
Goldman Sachs (GS), report published on 15th July:
→ Earnings per share: actual = $8.62, expected = $8.35;
→ Gross income: actual = $12.73 billion, expected = $12.35 billion.
Other major banks, including JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC), have also surpassed analysts' expectations. Although following different trajectories, the stock prices of all the listed banks have generally been rising after the publication of their earnings reports.
Notably, the formation on the XLF chart is interesting – this is the Financial Select Sector SPDR Fund ETF, which is focused on the financial sector and includes the shares of the largest US banks. You can trade this ETF with FXOpen, taking advantage of CFD instruments.
Technical analysis of the XLF chart shows that:
→ In 2022-2023, the price was in a broad trading range of 30.70-36.6;
→ In 2023-2024, the price formed an upward channel (shown in blue);
→ The median line of this channel acts as support;
→ Rising lows A and B resemble a bullish Cup and Handle pattern.
In the wake of the successful bank reports:
→ the XLF price broke through the 42.20 level, which had been acting as resistance since the end of March;
→ the RSI indicator entered the overbought zone.
It is possible that amid positive earnings reports from other companies in the financial sector:
→ the XLF price could reach the upper boundary of the blue channel;
→ the RSI indicator could form a divergence;
→ subsequently, a correction may form on the chart as investors may wish to lock in profits from the rapid growth.
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S&P 500 Financial SectorOverview of the S&P 500 Financial Sector
The S&P 500 Financial sector is one of the eleven sectors in the S&P 500 index, representing a broad range of companies involved in financial services, including banking, investment, insurance, real estate, and diversified financial services.
Key Components
Banks:
Major players include JPMorgan Chase, Bank of America, and Wells Fargo. These institutions offer a variety of services, including consumer and commercial banking, asset management, and investment banking.
Insurance:
This sub-sector includes companies like Berkshire Hathaway, AIG, and MetLife, which provide life, health, property, and casualty insurance.
Investment Services:
Firms such as Goldman Sachs, Morgan Stanley, and Charles Schwab fall into this category, offering investment banking, trading, brokerage, and wealth management services.
Real Estate:
This includes real estate investment trusts (REITs) and real estate management firms like American Tower Corporation and Prologis, which own and manage properties and generate income from leasing and property sales.
Diversified Financial Services:
Companies like Visa and Mastercard offer payment processing and other financial technology services, while firms like American Express provide both payment and lending services.
Performance Indicators
Interest Rates: The performance of the financial sector is closely tied to interest rates. Higher interest rates typically benefit banks and other lenders by increasing their net interest margin, the difference between the interest earned on loans and the interest paid on deposits.
Economic Growth:
A strong economy boosts the financial sector as businesses and consumers borrow and invest more. Conversely, economic downturns can hurt financial firms due to increased loan defaults and reduced investment activity.
Regulatory Environment:
Changes in financial regulations, such as those implemented after the 2008 financial crisis, can significantly impact the sector's operations and profitability.
Recent Trends
Digital Transformation:
Many financial companies are investing heavily in technology to improve customer service, reduce costs, and stay competitive. Fintech innovations such as blockchain, mobile banking, and automated trading are reshaping the industry.
Mergers and Acquisitions:
The sector often sees significant M&A activity as companies look to expand their market share, diversify their services, and achieve cost efficiencies.
Interest Rate Environment:
Recent years have seen historically low-interest rates, impacting banks' profitability. However, expectations of rising rates due to inflation concerns could benefit the sector moving forward.
Investment Considerations
Dividend Yields:
Financial stocks often offer attractive dividend yields, making them appealing to income-focused investors.
Valuation Metrics:
Key metrics for evaluating financial stocks include the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and return on equity (ROE).
Risk Factors: Investors should consider risks such as credit risk, regulatory changes, market volatility, and economic downturns that can adversely affect the financial sector.
Conclusion
The S&P 500 Financial sector is a diverse and vital part of the overall market, influenced by a variety of economic and regulatory factors. With ongoing digital transformation and potential benefits from rising interest rates, the sector presents both opportunities and risks for investors. Understanding these dynamics is crucial for making informed investment decisions in this sector.
XLF- Nope Nothings ChangedXLF....
I could on long diatribe about the Banking sector and financials and the economy...
But I'm not
You want to know why? (i'm going to tell you regardless)
It's because deep down you know that the Banking system is a house of cards and these Bankers..JUST..CANT..RESIST..THEMSELVES
SHORT XLF...for now...and then a Big Short (pun intended) later
(i'll show the "later" on anther chart at a later time...hint see that big horizontal white line well below the "C"...thats the destination for the other "later")
XLF Breakout?Bank earnings start this week so I'll be watching XLF. It is near major trendline resistance and a prior high. If it can break above, we should see a move up for XLF over the next few months. Otherwise, it could fail and head back to the lower end of the range.
XLF To RallyXLF normally moves quite slowly, but we may may be at a moment in which that accelerates substantially, even improving on what has been a phenomenal year.
Weekly -
Daily -
The EW path drawn is what may be expected most commonly - we're looking for that or better.
Do you trust financials to break out here? $XLFBelow I show you a longterm AMEX:XLF chart that has had a complete rocket higher without any consolidation in price.
In my opinion XLF cannot break out here without some consolidation back down in price; and then maybe it can retest and breakout; but I don't think it can do it on the initial attempt...
I may be wrong, but you can place your bets accordingly.
Goodluck!
XLF Weekly ChartsWell we've been here before with financials. Are we ready to go ahead and move along from this level? I'LL be completely honest I don't like that wick on last weeks candle, but we still closed green making it the 10th positive week. Regardless of what I believe the chart is the chart.
ToppingXLF has been up on the weekly without any major pullback since October, 2023. Now the rally has reached major resistance from previous ATH and with a series of 3 bearish divergence in RSI, the 5-wave rally from the October lows has either topped or is near a top. The rally is also getting less steep falling under the trend line. The next big move is likely to be down with the looming FOMC event on Wednesday.
$XLF: Financials are unloved and ready to rallyInteresting long term trend in AMEX:XLF here, paired with record low positioning for hedge funds, makes for a low risk vs reward and highly appealing long setup.
Additionally, paints a positive picture for the broad market as well.
I present to you the sector ETF, now it's up to you to find the hidden gems in the sector that will likely reap the largest rewards...I will try to find these and report to my clientele of course.
Best of luck!
Cheers,
Ivan Labrie.
XLF 3d Chart, 2024 Q1-Q2Publishing XLF to see how the financial etf does going forward. It's at the decision point of either breaking through to new ATHs or possibly forming a double top in the higher time frames.
Weekly chart analysis - Harmonic Patterns Pay close attention to 40$
Two bearish harmonic patterns are in play here
FINANCIAL SECTOR MELTDOWN IN T MINUS 3There is always a cause to an effect and the matter at hand is the markets are the textbook definition of OVERBOUGHT lower expectations so you can crush it, changing the definition of a recession so you can keep investors and of course the unknowledgeable stakeholders of the bank at ease this wont work the pressure will eventually burst the tank
especially with the coming rate hike
on the bright side while the pressure was building up they managed to reinforce and build a tank around the tank to reduce the damage and absorb the shock (the unusual rally in the QQQ n general market) yes this unusual rally in all markets might just safeguard a worst case scenario for that reasons the various zone are where id expect a continuation worst case senario it hits 26.55 yikes
imagine how much worse the other sectors will have it and of course the stocks in it (stocks will always yield X2,X3 more than the sector bull and bear)
that said im just going to show you where to short your money my speculation unfolds (hopefully it wont say the bulls)
1. THE AMEX:IAT
2. Once we know the AMEX:IAT dumping we look for bigger yields in its babies NYSE:WFC NYSE:JPM NASDAQ:PACW NYSE:GS NYSE:BAC check the diversified or regional cause they will yield X100 🤑🤑🤪😈😈😈 Id spot them out but i dont get credited enough for this shxxx so seek em out thats where the fun is
XLF breaking below a local demand line, rising top flat bottomRising top flat bottom channel. Two key support targets for downside. Technical analysis would suggest downside price action from here. RSI close to breaking below 50.
Watch the Banks - XLFAll information in the video. I think a turn for xlf is coming and it may be quite strong. Under 37.50 will be a marked change especially if they close the week below it.
Good luck!
XLF to sell off?Looking at XLF, we have had a good pump. Over the last few days the RSI has been burnt up and we are starting to see some bearish divergence as well as the price flattening. I would like to try to play this down to the green supply zone below, best of luck. It may keep ripping to the upper trend line shown.
Financials looking toppyNo position posting as someone requested. Notice price action peaked with vwmacd.. and is also showing bearish divergence. Again no position, only bank I would buy is NYSE:JPM
XLF- Economic update, Liquidity and Financials (chart heavy)J.C. Parets had a great post today identifying an 8 month high for AMEX:XLF financials and a break above its descending wedge.
x.com
This is a deeper dive into the technicals for the sector, beginning with a look at the broader economy and central bank liquidity.
Economic outlook
The economy remains resilient. Broad economic variables continue to expand. This chart monitors:
Non-farm payrolls
Consumption
Household employment
Real GDP
Gross industrial output
Real personal income less transfer payments
Note that real GDP and real personal income have descended from their highs but remain strong.
Liquidity is up
There is a high correlation between expanding and contracting central bank liquidity and risk assets. We see risk assets drawdown on a lagged basis when central bank liquidity tightens quickly, and expand when central banks inject liquidity. The end of September saw liquidity tighten to its lowest level since 2020. Equities drew down to a local low 4 weeks later. Central bank liquidity has increased by $100B over the past week and $500B over the past two weeks. Risk assets are rallying in correlation.
Note the XLF correlation with liquidity and with the S&P
Sector rotation
Sector leadership is beginning to shift. Over 13 periods, we can see
Leading - Tech, discretionary, utilities, industrial, and financial
Improving - Energy, staples, health care, materials
Rotation within financials
Looking at the rotation within financials we can see some predictable trends. When the market is fearful of the financials sector there is a rotation into $JPM. During recessions and market turbulence, JPM gains relative strength to the sector, regional banks, and other large US banks. This trend reverses during expansion.
We can also see progression when we compare the recoveries of XLF, IAK insurance sector, and a cohort of 3 large fintech companies. The cohort of V, INTU, and FI advance first, followed by insurance, and then lagged by the broader financial sector.
We observe a very consistent breakout among large influences to the sector with JPM, BRK.B and BLK.
Game plan
I'm looking for confirmation similar to what we saw with IAK and INTU. 65-70% of the time, we see breakouts of these formations retest the breakout area. From there I will look for opportunities between 38-39 to take profit. These align with the 1.618 and 2.0 extensions from the most recent retrace as well as a proportional movement from a measure within the pattern. The beauty of playing this pattern in this manner is that we can confidently set a tighter stop, as a full candle close back into the descending wedge will invalidate the opportunity.
XLF breaking out?XLF has had a pretty good month so far. Probably the worst sector is showing some signs of life despite issues with the banking system. This week XLF has poked its head above the triangle and the close was pretty good. Volume increased from last week as the down trendline was breached. Now, it is not a confirmed breakout yet as horizontal resistance is right above it and things are getting a bit overheated in the shorter time frames. It will be interesting to see how the pullback plays out. Markets are due for a nice pullback soon. If $31.5 - $32.5 area holds on the pullback then it might go off to finish the primary wave 5 sometime during the first half of 2024. This may also pull regional bank stocks that will benefit Russell and IWM.
Financial XLF CrashLast week was a bearish engulfing candle on high volume so it will continue this week. After 3 days of drop, prices reversed to hit some stops then continued down with the trend.
Target is Gap fill
