Tuesday, April 20, 2010

XLF S&P 500 Financials Sector: Goldman Sachs Aftermath

۩ ۩ ۩

XLF Overview
XLF is up +2.32% for the week, up +4.95% for the month, up +16.25% for the year, and up +167.41% since the March 9, 2009 market bottom. XLF dived on Friday after the Securities Exchange Commission announced civil fraud charges against Goldman Sachs (see big red candle on daily chart below, lol).  However, financial sector quarterly earnings so far have been encourage with Citigroup reporting a profit on Monday and Goldman Sachs reporting blowout earnings and revenues on Tuesday.  XLF is still below the April 14 YTD high, but working its way back up to it.

XLF ETF & Portfolio Holdings
The XLF is a financials ETF designed to represent the financial sector of the S&P 500, which is 16.69% of the S&P 500. See the XLF Financials portfolio holdings here. Top 6 holdings currently are: Bank of America, JP Morgan Chase, Wells Fargo, Berkshire Hathaway 'B', Goldman Sachs, and Citigroup which are 47.03% of the total portfolio. Goldman Sachs is 4.76% of the portfolio and Berkshire Hathaway 'B' is 7.28%, for a total of 12.04% or about 1/8+.  Berkshire Hathaway is also affected by the Goldman Sachs stock valuation because of the warrants on GS that Warren Buffett holds.  This is a very popular and liquid ETF.

XLF Daily Chart
Below is the XLF daily chart for 2010.

Noteworthy XLF Closing Prices on Daily Chart below:
Current Close 16.74 (Highest yellow line)
2010 YTD 4-14-10 High 17.05
10 Month EMA 14.90 (Second highest yellow horizontal line)
YE 12-31-09 14.40 (Lowest yellow horizontal line)

XLF: Goldman Sachs Aftermath, But Encouraging Sector Earning

Intermediate-Term Trend
The intermediate-term signal, the comparison of the 25 day and 50 day simple moving averages, signalled a bull market for the XLF on March 15. That is, the 25d sma is greater than the 50d sma. A bull market signal had been in effect since March 15, 2010.

The current closing price of 16.74, the highest yellow horizontal line, is just below the 2010 YTD 4-14-10 closing high of 17.05.  This is recent resistance. There is some price action from October 2008 and a closing peak of 17.33 on 10-14-08 that may act as long term resistance.  There is nothing else long term prior to October 2008.

There are multiple levels of support below.   Most notable short term support is the Friday Goldman Sachs downdraft and close of 16.36, which was also the bottom of the previous dip on April 7 of 16.35 dip.  XLF is now above some October 2008 dramatic sideways trading.

Moving Averages
The 25d, 50d, 100d, and 200d sma's are all ascending and spreading out in a bullish fan, as YTD highs pull the sma's upwards.

Uptrend Line
The uptrend line, a rate of price ascent, is from the March 6. 2009 closing low of 6.18 up through the February 8, 2010 closing low of 13.66. The February 8 closing low was the bottom of the 2010 pullback. XLF struggled with this trendline for several days before a breakout above on February 16.  XLF has remained well above since.

Downtrend Line
The downtrend line, a rate of price descent, is from the June 1, 2007 all-time closing high of 38.02 down through the April 14, 2010 closing high of 17.05, the peak YTD closing high so far.  XLF is just below this trendline.

Relative Strength Index (RSI)
RSI 14 day = 67.67 is reasonable; Friday's selloff pulled the RSI down from overbought conditions
RSI 28 day = 67.89 is reasonable; Friday's selloff pulled the RSI down from overbought conditions
The RSIs are indicating XLF can go higher.

MACD (12,26,9)
The MACD is became bearish on Monday, April 19, in the aftermath of the Friday selloff.

Long-Term Trend
The middle yellow horizontal line is the 10 month exponential moving average from the monthly chart, which I have overlayed on this daily chart. That is the line in the sand, so to speak, for the long term signal of a bear market. The XLF is well above this signal at the current close, the highest yellow horizontal line.

Overall, I am bullish on XLF in 2010.  XLF took the hit on Friday with the Goldman Sachs Selloff and is reboudning but still below the Wednesday, April 14, 2010 YTD closing high. The RSIs are reasonable and the MACD is slightly bearish, but mostly neutral.  XLF is in position to continue with another 2010 YTD high, before any pullback and consolidation.   If and when this upside break through occurs, there is some long-term resistance above, but an upside breakout of 1.00 or so could easily occur. The intermediate-term trend is bullish. The long-term trend remains bullish.

We have no investment position in XLF or any of the stocks in the portfolio holdings.  I am considering a long  purchase for an intermediate-term position.

۩ ۩ ۩

Seeking Alpha