Many market observers closely watch the Financial Select Sector SPDR ETF (XLF) , as it is an important sector and often a market leader at major turning points. Let's check on the charts and indicators for XLF.
In the daily bar chart of XLF, below, we can see how prices have gapped to the downside Monday. Prices are now below the rising 50-day moving average line. The 200-day moving average line has been acting as resistance the past two months and rallies to the line have all failed.
The On-Balance-Volume (OBV) line has rolled over this month and tells us that action has switched from aggressive buying to aggressive selling. The trend-following Moving Average Convergence Divergence (MACD) oscillator is very close to the zero line and therefore very close to crossing it for a possible outright sell signal.
In the weekly Japanese candlestick chart of the XLF, below, we can see a couple upper shadows at the underside of the declining 40-week moving average line. The upper shadows tell us that traders rejected the highs.
The weekly OBV line shows weakness from August into September and the MACD oscillator is still below the zero line and still short of crossing to a buy signal.
In this daily Point and Figure chart of XLF, below, we can see a downside price target around $22. This is not a big decline but it would be a new low for the move down on this chart. Further declines are possible.
Bottom-line strategy: It looks like Monday's decline in the XLF will be on relatively heavy trading volume and that tells us that investors are voting with their feet. The XLF could decline to the $20 area by year-end. Avoid the long side for now.
