The Canadian Technician

XLF- Is the Financial Sector Signalling a Major Top?


I am not a banker. I rarely write about the USA bank sector.  Today is a new day! Here is a view into the Financial Sector in the USA.

XLF 20121107

I don't think we should change the ticker to CLIFF just yet, but this appears to be breaking down.

XLF 201211 07 Daily

This daily chart has lots of negative divergence.

My main concern here is all of the blogs recently have played out as an intermarket package.

The major tech stocks have broken down. The Dollar is gaining strength, the commodities analysis as an economic indicator is working. Copper was not able to hold its MA as discussed. Financials leaving the party is one of the final nails in the coffin. 

At some point I expect a bounce, but I feel like this is a major top and having this financial group confirm it is troubling. If we can't find yield in the bond market and we have slowing global growth, it leaves very few places to park. That's troubling.

Here is a look at the Canadian financial sector.

$SPTFS 20121107

The small negative divergence on the right edge of this chart is normally not a big deal. But if the overall global market swoons here, these stocks will as well. Following the XLF over makes it a big deal.

I expect the Canadian banking sector to roll over with the US sector. I am specifically concerned about the Canadian Governments efforts to drop Canadian housing speculation and becoming a little too successful! This sounds like the Chinese banking story after slowing real estate 2 years ago.

Here is a chart of the XLF with the Canadian Financial Sector overlaid. You can see the Canadian  Based Financial sector  is  underperforming the broad XLF. 

$SPTFS XLF Correlation 20121107

At the bottom is a 6 month correlation. Doesn't get much tighter than that.


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Screen Shot 2012-11-07 at 11.25.15 AM
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Good Trading,

Greg Schnell, CMT


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Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at specializing in intermarket and commodities analysis. Based in Calgary, he is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is also the author of Stock Charts for Dummies (Wiley, 2018). Learn More
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