Wednesday, May 12, 2010

S&P 500 Financials Sector: XLF Update

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XLF Overview
XLF is up +5.17% for the week, down -1.79% for the month, up +10.21% for the year, and up +153.51% since the March 9, 2009 market bottom. XLF has held up relatively well in this current market pullback and the memorable Flash Crash Thursday, May 7.  Financial sector quarterly earnings have been encouraging.  The USA federal investigations into Goldman Sachs, JP Morgan, and Morgan Stanley have weighed on this sector.  The suspicion surrounding the Flash Crash have also tainted the sector to some extent.

XLF ETF & Portfolio Holdings
The XLF is a financials ETF designed to represent the financial sector of the S&P 500, which is 16.60% of the S&P 500. See the XLF Financials portfolio holdings here. 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 15.87 (Highest yellow horizontal line)
2010 YTD 4-14-10 High 17.05
YE 12-31-09 14.40
10 Month EMA 14.99 (Lowest yellow horizontal line)

XLF: Holding Up Surprisingly Well

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, which remains intact. That is, the 25d sma is greater than the 50d sma.

The current closing price, the higher yellow horizontal line, has pulled back.  There are multiple levels of recent resistance above.  The benchmark price of 16.00 has a lot of price interaction as both short term and long term resistance.  The peaks of 15.92 on March 17 and 16.02 on March 29 could act as recent resistance.

There are multiple levels of support below, including the peak of 15.73 on October 14, 2009.  XLF is now in the October and early November 2008 dramatic sideways trading.

Moving Averages
XLF plunged through the 25d, 50d, and 100d simple moving averages last week.  XLF did remain above the 200d sma and has so since July 13, 2009.  XLF still remains below the 25d and 50d sma's, which reflects the current price weakness.  

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 previous 2010 pullback. XLF regained this uptrend line on Monday, which is encouraging.

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 below this trendline.

Relative Strength Index (RSI)
RSI 14 day = 41.54 is leaning oversold, but has bounced up from the low of 31.99 on May 7
RSI 28 day = 49.42 is reasonable and has bounced up from the low of 42.46 on May 7
The RSIs are towards the oversold range..

MACD (12,26,9)
The MACD has been bearish since April 19, in the aftermath of the Goldman Sachs Friday sell off.

Long-Term Trend
The lower 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 above this signal at the current close, the higher yellow horizontal line.

Overall, I remain bullish on XLF in 2010.  XLF has had a Goldman Sachs Selloff on April 19, a Greece/EU Crisis, a Flash Crash Blame, and an overall suspicion that the financial system is corrupt.  In the wake of all this, XLF has held above the 200d sma and is now above the 100d sma.  The RSIs are leaning oversold reasonable and the MACD is flipped to bearish during this pullback.  However, Q1 revenues, earnings, and outlook have been good, certainly better than last year. XLF is in position to continue upwards.  The intermediate term trend and long term trend remain bullish.

We have no investment position in XLF or any of the stocks in the portfolio holdings.

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Seeking Alpha