Financials have had a rough year. Well actually a rough three years. Some sectors have done better than others, for sure, but on the whole they are lagging. I am sure the CEO’s and Officers of many of these companies cannot wait for 2011 to end so as to have a better chance at their underwater stock and options positions moving back in the money in 2012. But as any trader knows, hoping and wishing are not a strategy. So what do the charts say about the prospects going forward? Let’s take a look using the Financial Select Sector SPDR, $XLF, in multiple time frames.
Financial Select Sector SPDR, $XLF, Monthly
The monthly chart above is at a crossroads. There are some positive signals. Price has recently bounced higher back over the 38.2% Fibonacci level, after retracing and stopping at the 50% level of the rebound move from the March 2009 lows. This bodes well for a move back to 16.94 over time. But it needs to get through resistance at 13.70 first. And then there is….come to think of it, that is the only positive signal on this timeframe. The negatives add up though. The Simple Moving Averages (SMA) are all sloping lower and above the price. The Relative Strength Index (RSI) is in bearish territory and moving sideways, no longer trying to go higher. The Moving Average Convergence Divergence (MACD) indicator is negative and starting to grow more so. As it continues to fail to break above the 13.70 resistance it is building a bear flag. A drop below it triggers a target near 7.50. The weekly timeframe below is a bit more positive
Financial Select Sector SPDR, $XLF, Weekly
The RSI on this timeframe is still bearish but has been trending higher. The MACD is also positive. It has some room to run before it hits the downtrend line in pink. But notice where that is. 13.70 again. And it is becoming the confluence of the 50, 100 and 200 week SMA’s. This could be major resistance, no wonder it has stalled there. Also note that after only retracing 38.2% of the major move lower during the financial crisis it fell back and is trying to hold at the 23.6% Fibonacci level near 12.37. Losing this level would suggest a move back to the 2009 lows at 5.60. A convincing move over the downtrend line is required to consider getting long.
Financial Select Sector SPDR, $XLF, Daily
Finally on the shorter term daily timeframe is why there is some hope for financial lovers. The chart above shows it making an approach to resistance at 13.25 with a rising RSI and MACD that has just crossed positive. The RSI has not turned bullish yet, but take what you can get. It is above the 20, 50 and 100 day SMA’s and the 20 and 50 day SMA’s are starting to rise. It has also made a higher low. This is not a bullish chart but it is showing some signs of life, and a lot of work to do. Over 13.25 it faces resistance at 13.60 and then 14.00 and 14.50, as well as the down trend line.
Bottom line, the financials may do better in 2012 than they have in the past 3 years, but they have the deck stacked against them in the charts. Just because they do not scream to short right away anymore does not mean that they do not still suck. Being not the worst is very different from being good. You might think that the move from the current 13.06 to over 14.50, more than 11% higher is something that you do not want to miss. And if you are a proficient trader and attentive I agree. If not then understand that when the financials do turn around and prove it by exceeding 14.50 there will be plenty of upside to participate in. Until them stay away except for a short term trade.
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