The Financial Sector Is Rolling Over to the Downside

Here's why I think the XLF ETF looks vulnerable to further declines.

Shares of the Financial Select Sector SPDR Fund  (XLF) have made a pattern of three lower highs and could soon retest their early March nadir. Let's check out the charts of the XLF and I will leave the discussion about the yield curve and the possibility of a slowing economy to others.

In the daily Japanese candlestick chart of the XLF, below, we can see that prices recently closed back below the 50-day and 200-day moving average lines. Trading volume declined in March as prices rallied and that is not the pattern that old-time chart readers like to see. Volume should expand in the direction of the move, in this case up into late March. The On-Balance-Volume (OBV) line made a minor bounce in March and has turned lower again. A new low for the move down on the OBV line is not hard to imagine right now.

The Moving Average Convergence Divergence (MACD) oscillator has narrowed and is close to crossing below the zero line for an outright sell signal.

 

In the weekly Japanese candlestick chart of XLF, below, we can see that the price of this ETF has rolled over and a neckline at $36 is key. A weak close below $36 is likely to precipitate further declines. The 40-week moving average line is cresting.

 

The weekly OBV line is weak and the MACD oscillator is close to crossing below the zero line for an outright sell signal.

 

 

In this daily Point and Figure chart of XLF, below, we can see that the software is showing an upside price target but a trade at $35.31 could refresh the downtrend.

 

 

Bottom-line strategy: A lot of market observers and strategists pay attention to the financial sector. I have no special knowledge of what may be driving prices but I think the XLF looks vulnerable to further declines. Avoid the long side.

 

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