Saturday, July 8, 2017

XLF Financials ETF Weekly Chart; Price at November 2007 Highs; Upper Band Violation; Negative Divergence Developing; Sideways Channel

The semiconductors and banks drove the stock market higher last week. Bank earnings begin in the week ahead so there will be lots of drama occurring. The yield curve steepened last week after a failed French bond auction and recent hawkish comments from central bankers.

Traders threw bonds overboard and the yield curve steepened so investors are tripping over each other to buy the banks. XLF gapped higher last week. The bank stress tests went well so an orgy of buybacks and divvy hikes were offered to catapult prices higher. The central bankers are the market (the Fed conducts the stress tests). Financial engineering rules the markets!

The highs in price this week go all the way back to November 2007 at the peak of the stock market back then when stocks started collapsing there forward. The red lines show universal negative divergence over the last nine months and banks were weak until the last month. There is some near-term momentum that may correspond with small bumps higher on the earnings releases.

Price has violated the upper standard deviation band so a move back to the middle band at 23.86 and slightly rising is on the table. Interestingly, the XLF has not touched its lower band since early 2016 about 1-1/2 years ago. Rest assured that his will happen at some point in the months ahead. The blue H&S pattern was previously highlighted but price is taking out the head nullifying the pattern that now morphs into a sideways channel through 23-25.

The brown inverted H&S had a head at 16 at the 200-week MA support and a neckline at 19.5 so the breakout targeted 23.00. Bingo, that was achieved in quick order at the end of last year.

The chart hints at another week or three of buoyancy in price, especially with bank earnings on tap, but the move higher in banks appears long in the tooth. The banks are not an attractive investment now. Keystone does not hold any positions in the banks.

The XLF monthly chart is topping out with all indicators neggie d except for the MACD line. Thus, a jog move would be expected, down, up, then down with the rollover, on the monthly basis. Thus, banks will likely peak during the earnings period over the next couple weeks, then pull back for a month or so then likely move back up for another higher high in price and likely print a mutli-year high, say in the August-October time frame. 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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