Most market watchers would agree that a sustainable market advance should
have quality leadership. The banking sector generally is a pretty good candidate
to provide such leadership, but over the past 6 months, banks have been amongst
the worst performers.
As you can see from figure 1, a weekly chart
of the S&P Select Financial SPDR Fund (symbol: XLF), the banking sector
peaked in February, 2011 and this ETF has been in a downtrend since. More importantly,
there is a key pivot point (red dot) at 14.76. Key pivot points represent the
best areas of buying (support) and selling (resistance). A weekly close below
this level (14.76) would be an ominous sign for XLF and the markets in general.
Figure 1. XLF/ weekly
But wait a minute, look at the oval with the 3 red dots. This was 1 year ago,
the summer of 2010. The blue up arrows show a weekly close below a key pivot
point. This should have been bearish, but then came Ben Bernanke and QE3 to
save the day. The market reversed and you know the rest of the story.
Bottom line: XLF is sitting at support levels. A breakdown would not be market
positive. For obvious reasons, the financial sector is important to watch.
If XLF does break down, who is going to save the day?
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