Larry’s Note: Tonight, I’m holding my Currencies in Crisis summit. This is an event you won’t want to miss…
If you’ve never paid much attention to currencies, you’re not alone. Despite being the largest market in the world, many people haven’t spent time learning how to trade forex.
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I highly encourage any traders who want to know more to attend tonight. I’ve traded currencies for over 35 years, and I’m very excited by what I’m seeing right now.
Simply go right here to RSVP for free with a single click.
The stronger-than-expected earnings results of JPMorgan, Citigroup, and Wells Fargo last Friday gave the financial sector a much-needed shot in the arm.
It couldn’t have come at a better time given the huge punishment meted out to this sector in March. Bank collapses (including Silicon Valley Bank and Signature Bank) pulled the rug out from the entire sector.
While regional banks have continued to struggle, the broader-based Financial Select Sector SPDR Fund (XLF) is focused more on larger-cap companies. And it has slowly been grinding higher.
Now XLF’s up move is entering a critical phase. So today we’ll see how the action might play out from here…
A Transitioning Pattern
On the chart below, the 50-day moving average (MA, blue line) shows XLF’s strong downtrend in the first half of last year.
However, it bottomed out in June through July. And XLF transitioned into a sideways pattern. The 10-day MA (red line) crossed the 50-day MA multiple times in both directions…
Financial Select Sector SPDR Fund (XLF)
Source: e-Signal
Within XLF’s sideways movement, you’ll notice a number of repeating patterns…
When the RSI trended higher (red lines) from oversold territory, XLF was able to hold support and rally higher as well.
As you can see, that happened in June through July… September through October…and again recently in March.
Each of those rallies peaked and reversed when the RSI rolled over from overbought territory and started trending lower.
In February, XLF’s down move began with this pattern. And notice this was well before any news of the bank collapses.
However, those collapses did greatly intensify XLF’s down move.
The 10-day MA’s steep drop below the 50-day MA shows the severity of XLF’s fall. The RSI also saw a dramatic move well below the oversold line.
Take another look at the chart…
Financial Select Sector SPDR Fund (XLF)
Source: e-Signal
But when we checked out XLF late last month (downward red arrow), the RSI had bottomed out and was starting to trend higher.
That was happening while XLF was right in the middle of testing support (orange line). For XLF to rally, we discussed how we needed to see the RSI continue tracking higher.
We also noted that the RSI’s move toward resistance (green line) would likely see XLF trade back up at around $33.
And that’s exactly how things played out.
So now, with the RSI breaking back into its upper range, what can we expect from here?
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An Accelerating Uptrend
When XLF bottomed out and rallied in June through July – and again in September through October – that coincided with the RSI trending higher from oversold territory.
However, those up moves developed into proper rallies only after the RSI broke into the upper half of its range… and stayed there.
As of now, the RSI has just recently broke through resistance. For XLF’s current rally to develop into something bigger, the RSI must gain further traction in its upper band.
I’m also keeping a close watch on our two MAs…
Recently, the 10-day MA has been trending higher after bottoming out last month.
But for XLF’s rally to really take hold, the 10-day MA must break above the 50-day MA – and then accelerate higher.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
Reader Mailbag
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