Interest rates are climbing daily and while this may mean that banks have a better NIM or net interest margin -- it may also mean that loan losses may go higher than anticipated, for example. Various market observers on Twitter are waiting for a shoe to drop or a bank to blow up.
Let's check out the charts and indicators of the Financial Select Sector SPDR Fund (XLF) for clues.
In the daily bar chart of XLF, below, we can see that the shares are weak and are poised to test or break the June/July lows. Prices are trading below the cresting 50-day moving average line and below the declining 200-day line.
The On-Balance-Volume (OBV) line has been on a "glide path" lower since February as traders of XLF have been more aggressive sellers than buyers. The Moving Average Convergence Divergence (MACD) oscillator moved below the zero line for an outright sell signal.
In the weekly Japanese candlestick chart of XLF, below, we see a picture of prices rolling over for the past two years. The shares are trading below the bearish 40-week moving average line.
The weekly OBV line has been in bearish slide since early 2022. The MACD oscillator turned bearish in April.
In this daily Point and Figure chart of the XLF, below, we can see a projected downside price target in the $29-$28 area.
In this second Point and Figure chart of the XLF, below, we used weekly price data and a five-box reversal filter. Here the software suggests a price target in the $24 area.
Bottom-line strategy: Are the banks in a stronger financial position than they were in 2008? I guess so, but rising global rates and big moves in currencies could upset their business strategies. The charts of the XLF are weak and pointed lower so the best strategy, in my view, is to stand aside.
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