The Next Move in Financials

Financial stocks have been big winners following the election. The Financial Sector ETF ($XLF) is up over 18% during that period. That is great news if you owned it. But what if you didn’t? Is it too late to buy? And if you do own it is it time to sell now and protect your profits? The chart below suggests that there may be a second move ready to take place.

The chart shows the XLF from April until Wednesday. Most prominent are the long slow plod to the upside, capped by trending resistance from April until the election. Then the fast move higher and continuation to the current level at the beginning of December. Since then there has been consolidation under resistance in a tight range. But there is more there.

The indicators suggest a second move may be about to happen. First the Bollinger BandsĀ® are squeezing. Tight Bollinger Bands are an indication that a move may be coming very soon, but not what direction. The momentum indicators suggest that the move if it comes soon will be to the upside. The RSI has worked off an overbought condition as it pulled back. The pullback held in the bullish zone and has reversed back higher now. The MACD has also pulled back from extremes and is now level, in positive territory.

The price has reconnected with its 20 day SMA, so it has waited out that extended move. A measured move out of this consolidation would give a target to 27 on a second leg higher. With a natural stop level at the bottom of the current consolidation range, just over 23, this gives a great reward to risk ratio for a new trade.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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