[Chart Of The Week] Is The Next Sector Rotation Into Financials?
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[hide_from visible_to="member"]Today we are looking at a chart of the S&P Financials Index ETF $XLF relative to the S&P500 itself. In other words, bank stocks compared to the rest of the market. What I see is very simple: A failed breakdown below support from the February and April lows and a bullish momentum divergence to add fuel to the fire. Here is the daily line chart:
Click on Chart to Zoom in
I have chosen this as the Chart of the Week for 2 reasons. First of all, there is a mean reversion trade here. We can be long XLF and short SPY, for a trade as long as we are above those February and April lows. We want to be taking profits near former support levels from 2014 and 2015 near 0.0115.
From a more macro perspective, if financials are outperforming the S&P500 and the spread is squeezing higher, that's the sort of environment where stocks as an asset class are likely doing very well. This would be a bullish development for stocks.
I like this one.
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