Wednesday, September 25, 2013

XLF Financials Weekly Chart Upward-Sloping Channel H&S Pattern Price Extended Gravestone Doji

Financials are key today. Keystone's algo, Keybot the Quant, identifies the sectors and other market areas that are most affecting market direction in real-time. Right now financials is the most important with copper and volatility important as well. The algo identifies XLF 20.01, exactly where price begins the day, as the bull-bear line in the sand. Equities should move in the same direction as financials at the opening bell. If XLF moves higher, markets move higher. If XLF moves lower, markets move lower.

The green upward-sloping channel remains in play with price dropping under the bottom rail and back kissing yesterday. Note the gravestone doji candlestick last week which usually indicates a trend change, but this week would be needed to show a down candlestick to confirm the trend change. The blue dots show the price extensions. At the late 2011 bottom, price was under the 20 MA under the 50 under the 200 so a reversion to the mean was needed and the financials recovered to print a 2-year rally. Price is now extended to the top side and need a reversion lower. Note that all four of the reversions over the last year result in at least a one-point or more pull back. Therefore, price should be expected to test 18.50 as September moves into October.

The brown lines show a head and shoulders (H&S) pattern in play with head at 21, neck line at 18.5 and target at 16 if the 18.5 level fails. The 19 level can be used as a neck line as well which would target the support level at 17. The blue box for the ADX shows a strong trend in progress for financials this year with the black line moving above 25 and staying above, but, alas, the strong upside trend party is over. The red lines show the negative divergence spank down highlighted over the last couple months. Keystone has been looking for a rolling top by financials over the last few months and it remains a bone-head call but perhaps price will finally explore lower levels. The daily chart would actually be content with a short few-day bounce in the XLF but the weak and bleak outlook of the weekly chart indicators show that lower prices are desired after any bounce would occur. Projection is for sideways to sideways lower for the weeks and months to come.

For the near-term, today, XLF 20.01 is high drama. As XLF goes today, so goes the markets. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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