With rates rising, which is another topic unto itself, the financials should continue to be a sector of strength. As rates rise and spreads widen, banks will be able to lend at higher rates, which in turn is better for their profit margins. This is already starting to show up in the minds of investors as the Financial Sector has become a favorite of late.
Outperformance of Financial Sector Select SPDR ETF (XLF) has been evident since late April as shown in the chart below. A continuation of this trend (coupled with new 52 week highs for XLF) would be welcome news to active investors because the Financial Sector ETF has traded below its December ’14 highs all year. That could change today.
XLF:SPY Ratio Chart – Financials Outperformance
The below chart shows a double top buy signal that was generated with a 24.92 print, however all buy signals are not equal or should be acted on from a risk/reward scenario. As can be seen in the chart, XLF is up against resistance seen in the column of X’s that ended December 2014. That being said, I believe at this point, waiting for a 25.17 print may be more prudent, allowing for price to break through resistance.
XLF Point & Figure Chart
The financials are an important part of the market. If stocks are is going to move higher in a meaningful way, they will likely need the Financial Sector to assume a leadership role. But until the XLF breaks out to new highs, it’s probably best to keep them on your radar and stay focused. Thanks for reading.
Twitter:Â Â @Snyder_Karl
No position in any of the 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.
