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Financial Sector ETF May Break Below Price Gap

Our research team warned of a peak in the Financial Sector ETF on June 10, 2020, with this article.

It was important to understand the technical setup that existed at that time and what the Fibonacci Price Modeling system was showing then.  There was very clear support near $23 that was highlighted by the Fibonacci Price Modeling System and we were very clear in our future price predictions within that article…

“The $27 price peak sets up directly between our two Fibonacci Daily upside price target (Peak) levels.  We believe this setup is a very strong indication that a move to below $23 may be setting up over the next 30+ days.  The Q2 data may very well push investors to re-evaluate the potential for the Financial sector if delinquencies and at-risk borrowers continue to default in greater numbers. “

The timing of our original article could not have been better for skilled technical traders.  Since that June 10, 2020 article posted, the XLF price has fallen almost exactly to $23 (-10.15%).

Currently, the FLX price is recovering just above the price gap that will act as the next “window” for the price to attempt to fill.  Skilled technical traders should watch the Breakdown Gap that setup between June 10 and June 11 as an upper window of resistance (between $25.20 and $24.35).  It is very likely that the XLF price may attempt to breach or fill this gap window before initiating another downside price move targeting levels below $22.

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DAILY XLF CHART

It is our opinion that should sudden price weakness drive price levels lower, away from the upper gap range, then weakness in the financial sector could create a series of new lower price gaps as XLF price levels attempt to gap downward – through $22, then $20, then ultimately the $18 to $19 price level.

This Weekly XLF chart highlights the longer-term Fibonacci Price Modeling System’s expectations showing the current downside price move has broken below the Bearish Fibonacci Price Trigger Level near $24.87.  At this point, the next lower support level is near $22.10 – just below the lower Gap level.

It is our opinion that the Financial Sector ETF will attempt to break below $22 in the near future and may attempt to fall to levels near or below $20.  The current support in the market from the $23 level may prompt a move into the upper Gap level before the next downside move begins – although we feel that is not likely to happen.

WEEKLY XLF CHART

Watch for a breakdown in price trading below $23.50 as an indication that weakness has prompted price to trade below the recent “Belt-Line” price level.  We believe a new close below $23.50 would be a good indication that the lower Gap is about to be filled and a deeper price move may take place targeting $20 to $21.

As the Q2 data starts to hit the news wires over the next 4+ weeks, we believe risks to the financial system will become very evident as a result of the COVID-19 shutdown.  Be prepared for increased volatility in almost all sectors and the very real potential for a retest of recent low price levels.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is an incredible year for traders and investors.  Don’t miss all the incredible trends and trade setups.

Subscribers of my Active ETF Swing Trading Newsletter had our trading accounts close at a new high watermark. We not only exited the equities market as it started to roll over in February, but we profited from the sell-off in a very controlled way with TLT bonds for a 20% gain. This week we closed out SPY ETF trade taking advantage of this bounce and entered a new trade with our account is at another all-time high value.

Ride my coattails as I navigate these financial markets and build wealth while others watch most of their retirement funds drop another 35-65% during the rest of this financial crisis going into late 2020 and early 2021.

Just think of this for a minute. While most of us have active trading accounts, what is even more important are our long-term investment and retirement accounts. Why? Because they are, in most cases, our largest store of wealth other than our homes, and if they are not protected during the next bear market, you could lose 25-50% or more of your net worth. The good news is we can preserve and even grow our long term capital when things get ugly like they are now and ill show you how. One of the best trades is one your financial advisor will never let you do because they do not make money from the trade/position but we do have a way for you or your advisor can take advantage of the market gyrations with our Technical Wealth Advisor investing signals.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Passive Long-Term ETF Investing Signals which we issued a new signal for subscribers.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

Financial Sector Under Pressure and What It Means

The Financial sector is unique in that it is an essential component of global economics as well as local economic functions.  Consumers depend on banking services, credit, and all sorts of other financial services in their day-to-day lives.  The Financial sector is one of the components of the US stock market that can suddenly find itself under pricing pressure as an economic crisis event unfolds.  This happens because banks earn a large portion of their income from servicing debt and originating loans.

The recent rally in the Financial sector, over 47% from the March 2020 lows, has reached our proprietary Fibonacci price modeling system’s upside price targets and has also filled a major gap that was created in early March 2020.  Because of these factors, and the current downside price rotation within the Financial Sector, we believe this component of the US stock market could continue to see extended pricing pressure going forward as we learn just how damaging the past 70+ days of the economic shutdown have been for the economy.

We do know that certain consumers have quickly begun to pay off credit card debt.  We believe this is a learned trait from the 2008-09 market crisis where credit card rates skyrocketed as large numbers of consumers began defaulting on their homes and other types of credit.  We also know that delinquencies for autos and other sub-prime credit services have begun to skyrocket higher.  The sub-prime credit market is vastly different than it was in 2008-09.  Recently, Fintech and other new resources have allowed for extended sub-prime lending and leveraging within the US (Source: cnbc.com).

When you combine the sub-prime mortgage, auto, personal loans, personal Fintech margin capabilities, and sub-AAA corporate debt levels, the total amount of at-risk subprime debt must exceed $2 trillion US Dollars.  We believe this source of risk has been greatly underestimated in terms of risk to the Financial Sector over the next 12+ months (Source: zerohedge.com).

NON-100 LARGEST BANKS CREDIT CARD DELINQUENCY RATES

The current delinquency rate among the non-100 largest US banks for credit cards has already climbed well above the 2008-2010 peak levels.  It appears subprime borrowers are already pushed well beyond their limits in terms of servicing current debt levels.  This suggests a contraction in the credit market will likely take place over the next 24+ months as these at-risk borrowers default at greater rates.  This could transition into the housing market and other sectors of the economy if multiple waves of sub-prime borrowers stress the US financial system because of the COVID-19 shutdown.

XLF FINANCIAL ETF INDEX DAILY CHART

Our research team believes the peak in the XLF ETF has already set up after the recent 47%+ rally from the March lows.  The $27 price peak sets up directly between our two Fibonacci Daily upside price target (Peak) levels.  We believe this setup is a very strong indication that a move to below $23 may be setting up over the next 30+ days.  The Q2 data may very well push investors to re-evaluate the potential for the Financial sector if delinquencies and at-risk borrowers continue to default in greater numbers.

XLF FINANCIAL ETF INDEX WEEKLY CHART

This XLF Weekly chart highlights the recent rally and the “Gap” that recently filled.  It is our belief that the range between the MAGENTA horizontal lines represents a very clear support/resistance level within this longer-term XLF chart.  We believe that price will have to fall below $25 in order to initiate a deeper downside price move targeting recent low price levels or price will have to move above $27.50 in order to continue to rally.  Currently, our researchers believe the downside potential has a much higher probability of success as we get closer to the end of Q2:2020.

If our research is correct and XLF falls below the $25 price level, we believe it will target at least $22 to $22.50 before finding some support.  If it breaks below the $22 price level, it could fall well below the $20 price level again on weaker expectations.

These types of price swings can be incredible setups for skilled technical traders.  Follow our research and learn how we can help you find and execute better trades.  We recently executed a new swing trade for our members that is already showing great opportunity.  Protect your capital and learn to trade proven technical setups with our dedicated team of researchers and traders.

As a technical analyst and trader since 1997, I have been through a few bull/bear market cycles in stocks and commodities. I believe I have a good pulse on the market and timing key turning points for investing and short-term swing traders. 2020 is an incredible year for traders and investors.  Don’t miss all the incredible trends and trade setups.

Subscribers of my Active ETF Swing Trading Newsletter had our trading accounts close at a new high watermark. We not only exited the equities market as it started to roll over in February, but we profited from the sell-off in a very controlled way with TLT bonds for a 20% gain, and we closed out another winning trade on Friday.

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.