Markets – Macro – Technicals

$XLF: Financials Need a Rally

Financials were one of the sectors that benefitted the most from the post Trump election rally. After all the promises of tax cuts, infrastructure spending, a growing economy with yields rising, and coming deregulation all made for a powerful story. So far the story has been just that as policy uncertainty appears to be growing by the day.

Indeed the $BKX, the financial index, is down over 2% on the year as of last night’s close. The $XLF itself has put in a multi month topping pattern with the neckline of a potential heads and shoulders pattern coinciding with the .382 fib level off of the election lows. In process of the rally the XLF also shows multiple open gaps that remain unfilled and would represent a price magnet along with lower fib levels should the neckline experience a sustained break.

Banks are now starting to report earnings for Q1. More important than their earnings may be their outlooks going forward as loan growth has been stalling and yields have been backing off recent highs.

Bottomline: Banks need a rally into OPEX next week or risk seeing the H&S pattern trigger for a further move lower, possibly into the $21-22 range.

The potential silver lining: The RSI would look to be very much oversold on any of these lower gap fills presenting a long bounce opportunity.

All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.


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