About a month ago, we highlighted a bearish divergence in the semiconductor ETF (SMH) that indicated a potential rotation away from this growth-oriented group into more value plays. That rotation played out fairly well, as the SMH has indeed pulled back and broken its swing low from February.
Now we are detecting a similar bearish pattern in the Financial Sector ETF NYSEARCA: XLF as well as many of the big financial stocks and regional bank names.
In today’s video, we’ll review how a bearish momentum divergence signals a potential trend exhaustion, and how to validate and confirm these signals using traditional support and resistance levels. We’ll also discuss the following:
– How the current chart of many financial names mirrors the recent bearish pattern in semiconductors
– How a potential selloff in financial stocks relates to the incredible rise in interest rates over the last six months
– Why the short-term tactical call and long-term market trend may diverge here, and how to think about a pullback in financial stocks.
One Chart: $XLF Financials Sector ETF [VIDEO]
Chart Images:
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The author may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
