Financials have quietly outperformed since the summer. Are they now getting ready for a breakout?
The first pattern on today’s chart of the Financial Select Sector SPDR Fund is the series of higher lows since early November. That could suggest buyers are willing to pay incrementally higher prices.
XLF has pushed against a slightly rising trendline that runs along the highs beginning in late May. This combination of overhead resistance and higher lows may create the potential for a breakout.
Next is the $30.97 level. It was a major long-term high in 2007 (before the financial crisis) and early 2020 (before the coronavirus crash). Prices tested and held this support twice last year. There was also a failed breakdown in October.
Third, the 50-day simple moving average (SMA) had a “golden cross” above the 200-day SMA on December 22. Is the longer-term trend getting more bullish? In the shorter term, the eight-day exponential moving average (EMA) has also climbed above the 21-day EMA.
Finally, consider fundamentals and the macro situation. Banks have increased provisions for bad loans. They’re also fighting a deeply inverted yield curve and recession worries. What happens if some of those negatives start to lift?
Standardized Performances for ETF mentioned above: Financial Select Sector SPDR® Fund (XLF): 1-year: -12.42% 5-years: +22.54% 10-years: +156.95% (As of January 31, 2023)
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