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Over the past two weeks, the financials were one of the surprising leaders to the upside. Today, they are coming in rather hard in the face of a reversal lower after Citigroup’s earnings. Looking at the daily chart of the ETF for the sector, XLF, you can see a strong prior downtrend perhaps culminating with a falling channel. The bulls were able to break up and out of the channel last week, but then comes the proverbial, “Now, what?” issue.
I will be watching the $12 level closely here, as it not only represents where we currently find the smoothing out 20 day moving average, but it is also where a retest of the resistance trendline would be. The bull case would be fortified with buyers arriving at $12 to hold the line for a classic “throwback” of a breakout and retest. Therefore, it becomes an important area to watch for a tip-off about the underlying bid to the broad market as well.
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