Market Update: Dissecting The Financial Sector ETF (XLF)

xlf financial sector etf bullish setup analysis forecast chart june 29 2020

Over the weekend, I covered the financial sector in depth.

Last week, the Volcker rule was rolled back, while the Federal Reserve decreased dividends paid to shareholders and ruled against corporate buybacks.

One would guess that the rollback of the Volcker Rule should have more impact as this could be longer lasting.

With some big banks now able to invest money, that ruling is not likely to change.

However, the Fed’s ruling to decrease the dividends banks pay and keep banks from doing corporate buybacks, is most likely temporary.

Many expected the market to fall hard.

Instead, the Dow rose 580 points and the rest of the indices climbed too.

The Financial sector also rose, but we will need to see more.

XLF, the ETF for the big banks is a remarkably interesting looking chart.

For starters, today was an inside day (inside yesterday’s trading range) and a doji day (open and closing levels basically the same).

Secondly, although the high of the day touched the 50-DMA, it could not clear in price.

Third, the slope on the 50-DMA remains positively sloped, making this a confirmed yet weak bearish phase.

Fourth, the black horizontal line I drew across the lows of the last 2 trading days shows a longer-term support zone (22.45). 

Fifth, that same line shows a gap up from late May that has not been filled.

Finally, Real Motion continues to show a positive divergence with the price holding the 50-DMA.

I also read that the short float-or number of shares outstanding that are betting the financials will sink- is at oversold levels.

If momentum is correct, we can expect to see XLF regain its price rise. 

And that, like a boost from a long lost uncle, should help the rest of the Economic Modern Family.

The StockChartsTV Presentation in case you missed it –

S&P 500 (SPY) Cleared back over the 200-DMA making 301.67 support and 308.50 resistance 

Russell 2000 (IWM) 140-141 back to support-142.65 gap to fill

Dow (DIA) Held the 50-DMA 250 support 258.50 resistance 

Nasdaq (QQQ) 239.68 Friday low pivotal, 244.50 resistance 

KRE (Regional Banks) Went back into an unconfirmed recuperation phase-has to confirm

SMH (Semiconductors) 150.60 level is the resistance to clear. 140.75 the 50-DMA

IYT (Transportation) 161 resistance 154 support

IBB (Biotechnology) 134 support Needs to clear 136

XRT (Retail) Looks good especially if can clear 43.50. 41.00 area key support

Volatility Index (VXX) 34.50-38.50 range

Junk Bonds (JNK) 100 big supportLQD (iShs iBoxx High yield Bonds) 134.90 the high to clear

Twitter: @marketminute

The author may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

Sign up for our FREE newsletter
and receive our best trading ideas and research