XLF Financials Daily Chart; H&S

The financials exploded higher after the Trump election in early November. The president promises to cut regulations to reward the large investment banks. At the same time, the consensus of traders expect inflation on the come which would create higher Treasury rates and a steeper yield curve benefiting the banks especially the regionals. (Keystone does not agree with the consensus and instead expects continued global disinflation and deflationary behavior; overall inflation will not occur since wage inflation is not occurring.)

XLF price creates several gaps on the way up which will need filled at some point in the future. The head and shoulders (H&S) pattern sticks out like a sore thumb. Traders are indecisive as there are already two right shoulders in place and a third one in progress now. The bank bulls have been successful in preventing the failure at the neckline. The neckline is at 23.0 and head at 25.2, which is a difference of 2.2 so the downside target is 20.8 if the 23.0 neckline fails.

In early March, price was spanked lower off the top by the negative divergence clearly displayed with the chart indicators. The overbot RSI and stochastics were also agreeable to a pull back at that time.

The chart is not giving up much in the way of forecasting potential. Note the sideways stagger of price for the last 2-1/2 months through 23.0-24.0. Obviously, bulls win big above 24.0 (since price will likely want to retest the head at 25.2) while bank bears win big if price fails at 23.0 the line in the sand.

The 20 and 50-day moving averages are lining out sideways reflecting the price movement. Price, the 20-day MA and the 50-day MA are all at 23.59-23.62 so obviously bank bulls win above 23.62 while bears win below 23.59. A future death cross may print in June or July if the H&S neckline fails. The 50-day MA is already heading lower while the 200-day MA is moving higher. Financial bears need the XLF price to move under the 50-day MA at 23.59 and head lower since this will drag the 50-day lower. Bulls benefit if they can keep price above the 50-day.

The XLF weekly chart is also lining out sideways. The 20-week MA is at 23.74 and the 50-week MA is at 21.59. Thus, bulls win big if they can poke up through the 23.74-24.00 resistance. Bears will rejoice if the XLF slips under 23.00 since the target zone becomes 20.8-21.59. If XLF loses 23.00, all Hades will break out in the broad stock market. US stocks are not trading today (Memorial Day) but the banks in Europe are weak especially Italy. 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 Monday Morning, 6/5/17: XLF finishes last week at 23.45. The drama continues.