Sunday, February 12, 2017

XLF Financial ETF Weekly and Daily Charts

Banks have rallied higher after the Trump election. The reduced banking regulations, lower taxes and infrastructure spending, creates excitement and profit opportunities for banks. Once traders learned that Mnuchin and Cohn were weaseling their way into the cabinet, the investment bankers celebrate with glee.

Then comes the announcement that the Dodd-Frank rules will be slashed and other banking regulations would be nixed. Traders are buying banks with both hands. The banks will be less regulated and able to more easily screw customers and businesses to generate larger profits. The story gets even better. Fed's Tarullo, the watchdog over financial regulations at the Federal Reserve announces his retirement effective in April. He likely sees much of his work being dismantled. Bankers and the wealthy that own banking stocks drink Fed wine and dance jigs of joy at how easy it is to make money in a rigged stock market.

The XLF has rallied +25% since the Trump election in early November. The daily chart shows higher highs in price while the indicators negatively diverge (red lines). Price does not have much oomph remaining to take price higher in fact it has none in the daily time frame. The pink box shows that the wild trend higher was a strong trend but that petered out in mid-January and now price is directionless without conviction staggering sideways like a drunk in Times Square on Saturday night. The daily chart wants to see a pull back.

On the weekly chart, the pink boxes for the ADX show that a strong downtrend was occurring in banks in late 2015 into spring 2016 but that petered out as the cup and handle (C&H) pattern formed (blue). With the brim of the cup at 19-ish, and the base of the cup at 16.0 and 15.5, the upside target is the 22.0-22.5 level which was achieved satisfying the C&H.

Price is now teasing into the apex of the red rising wedge a bearish pattern. Just as there is a fine line between love and hate, there is a fine line between a rising wedge and an ascending triangle the former is bearish and the latter is bullish. The ascending triangle needs a flat top. The jury is out for the XLF but its drawn to favor the rising wedge. Price is elevated above the moving averages and needs a mean reversion lower.

The weekly chart indicators are oversold and negatively diverged. That is ugly stuff. The only good thing for financial bulls is the ADX that remains elevated at 42 so the uptrend is strong on the weekly chart. The expectation, however, would be that the ADX may roll over during the coming weeks and fall under the pink box losing the strong uptrend.

The XLF monthly chart is not impressive and negatively diverged. It all makes you wonder why television pundits proclaim that banks are the best buy of the century; not according to the charts. One talking head after another says, "buy the banks." Don't buy the banks. It would be best to stay away. The television cheerleading occurs since the investment managers that made money on the rally want to pass their shares off to Joe and Jane Sucka that has gotten caught up in the hype. Every rally needs a bag holder. There is nothing attractive about the banks this year which is in direct conflict to what 90% of what Wall Street proclaims. 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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