Sunday, December 8, 2013

XLF Financials Daily Chart

Scroll back to review the XLF weekly chart previously posted which continues to signal negative divergence with a roll over to the downside expected. Traders rise up exclaiming "Blasphemy!" since they are tripping over each other to buy the banks and other financials on the long side. With the continuous stock market pumping by the Fed and BOJ it is easy to understand the bullishness. Keystone's 2-10 Spread Indicator is 256 (the 10-year yield is 2.86% and 2-year 0.30%) and uses the 255 level as a line in the sand. A spread above 255 indicates that the steepening yield curve will greatly help banks to make money and send stock prices higher. Below 255 signals a continuing banking funk ahead. The jury remains out. Since the Fed has the 2-year anchored at 0.30%-ish, the magic 10-year yield for bankers is 2.85% and higher so watch this closely moving forward.

The daily chart is set up negatively just like the weekly chart. The money flow had a spurt of life which needed some down-up action, currently in play, and is now resolved with negative divergence. XLF tagged the upper standard deviation band and already contracted to the center band, which is also the 20-day MA now at 21.21. A price move to the lower band at 20.69, and rising, remains in play. The stochastics are under 50% in bear territory but the RSI bounced at 50%. There is a gap in play (brown lines) so price may create an island reversal and leap to 21.50 and higher, or, simply continue filling the gap at 21.4-21.5.

The general consensus is that banks will lead equities higher in 2014; this is why traders are running into banks and financials like there is no tomorrow. Projection is for price to probably fill the gap above towards 21.50 but then roll over to the downside moving forward. In general, financials are expected to move sideways to sideways lower going forward for the weeks and months ahead in direct disagreement with 90% plus of all traders that currently fully expect continued upside for the banks. Watch the 20-day MA since that will signal extended downside if/when it fails and this is also the same area as the lower red trendline. 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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