XLF Financials Daily Chart

The financials are the key to market direction the last couple days. Watch XLF 21.42 which is identified by Keybot the Quant. This is a critical bull-bear line in the sand where equities move higher if the XLF is above 21.42 and equities move lower if the XLF is below 21.42. Watch XLF at the opening bell since it tells you the fate of markets today. The bulls are winning by two pennies and the elevated XLF yesterday afternoon maintained the elevated stock market. The red lines show the negative divergence, overbot conditions and rising wedge that created the spank down in January. The bottom for price was cheesy as many are these days pumped higher more from central banker intervention rather than solid positive divergence. The RSI never reached the oversold level in early February.

The indicators are not tipping their hand; price is simply meandering sideways. Keep an eye on the 150-day MA (tiny blue circle) since it is starting to flatten and perhaps roll over negatively; this would be a very dire market signal. Two H&S patterns are in play. The neckline at 21 for the pink H&S failed but price recovered when it performed the back kiss. Using that 21 level projects a downside target at 19.85 if the 21 fails and a juicy gap is down there (pink circle). The blue H&S with the 20.50 neck line targets 18.85 if the 20.50 fails. Price may want to favor a sideways channel through 20.50-21.75 for the weeks ahead.

Right now, today, the 21.42 is what matters. The crowd forms. Bulls are on one side rooting for XLF above 21.42 that confirms stronger equity markets going forward with financials leading the parade. Bears are on the other side of the circus tent rooting for XLF below 21.42 since the flood gates will open to the downside ushering in strong market negativity. 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.

Note Added 3:57 AM on 2/22/14: The XLF drama continues. The bulls pushed the XLF higher in Friday trading for a HOD of 21.56, only to crumble lower at the closing bell down to the 21.42 bull-bear line in the sand, closing at 21.48, remaining on the bull side which maintains the elevated stock market. So the drama continues on Monday. The 150-day MA is 20.75 so the slope of this moving average increased only one single penny yesterday form 20.74. Watch to see if this MA flattens and rolls south since it would mean dire consequences for the stock market going forward. XLF 21.42 will decide the winner on Monday. Bears want to hear negative bank news over the weekend. Bulls want to hear positive news.