After looking through some charts on the Financial Sector Spider (ticker XLF) and some component names, I am thinking yesterday's selloff, on volume, is likely the beginning of a broader decline with the group. The following are the latest charts for the XLF and the XLF relative to the S&P 500.
This short position is a technical call, as I think the price/volume and other indicators are suggesting lower prices for financials. First, I think yesterday's high volume decline is an indicator for future underperformance. Yesterday's selloff occurred on 52 million shares, greater than at any other point over the last six months, outside of the September 13 euphoria surrounding the QE3 announcement that was short lived. To me this suggests there are sellers here and no buyers to support shares until the May and June lows. This setup is also in conjunction with a MACD that has gone negative and a weakening RSI.
Turning to the relative chart, there is a divergence in the relative price of the XLF to S&P 500 versus the respective RSI. This divergence can be an indicator of a trend change, especially in conjunction with other indicators. A similar divergence has opened up in the trend of the stochastics and trend of the relative price. This is while the MACD is beginning to role over. All-in-all, I think the XLF is likely to underperform the market and I am shorting the ETF in the short trading portfolio.
Turning to the relative chart, there is a divergence in the relative price of the XLF to S&P 500 versus the respective RSI. This divergence can be an indicator of a trend change, especially in conjunction with other indicators. A similar divergence has opened up in the trend of the stochastics and trend of the relative price. This is while the MACD is beginning to role over. All-in-all, I think the XLF is likely to underperform the market and I am shorting the ETF in the short trading portfolio.
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