XLF Financials Weekly and Daily Charts Rising Wedges Overbot Negative Divergence Potential Island Reversal Gap

The financial sector has run its upside course.  The bears were hosed when the fiscal cliff resolution created the gap up to start the year, which created the island that price sits on at 16.75 and higher. Traders believe that financials are going to lead the way to a robust year for the stock market and they bot accordingly as shown by the volume candle in mid-December on the weekly chart. However, as this year's upside orgy began, money flowed out of AAPL and into the speculative stocks, with high short interest, which created rocket rides to the upside and has helped created the bullish optimism. The financials have gained as well but traders have lost focus that this sector was supposed to be the leader this year.

Against that back drop, the weekly and daily charts are topping out. When there is universal rising wedges (bearish), overbot conditions and negative divergence, across both the daily and weekly charts, there is trouble ahead. With all the recent momo it is not unreasonable to allow a few more days, even a week or two, for a stutter step move sideways before the spank down occurs and then continued rolling over as time moves along. When price comes down a potential island reversal would occur with a drop back through the gap from 16.75 to 16.50. The weekly chart has a bit more upside momo (short green lines) but this is rolling over now as well. Note the thin red line for the RSI from September to December clearly showing negative divergence. However, the fiscal cliff resolution changed things quickly and the RSI jumped a touch into overbot territory. This is where divergences are divergences, until they aren't.  Charts can only build in everything for the news known up to the minute. The fiscal cliff news was not priced in so the bears had to endure pain.  As a rule, you want to see the RSI overbot which indicates the buying is overdone.  The RSI has now flattened and with the price flat or higher over the last two weeks, the negative divergence is back in place.

Projection is for a spank down at anytime, to 17.20, then perhaps the test of support at 16.75. The island reversal should occur, or simply a gap fill, as the days and weeks play out with price likely moving down towards the 16 support level for a test.  Keystone is holding/adding to the SKF and FAZ long trades, dangerous financial inverse ETF's, which, to no surprise, are attractively positively diverged with falling wedges (bullish). 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.