The Technology SPDR (XLK) and the Finance SPDR (XLF) remain in uptrends overall, but Friday's intraday reversal could signal a near term peak and result in a bearish wedge. The first chart shows XLK hitting a new high in early April and then declining below 35.25 with a sharp pullback. This decline seems deep and drastic, but it is not any deeper than the late January decline, which did not result in a long-term trend reversal. As with the late January decline, XLK recovered after the early April decline and moved right back towards its highs last week.
So far the bulls are still in control on this chart and I am looking for signals that would negate this thesis. Enter the bear wedge. At this point the wedge is still just potential and the short-term trend is up as long as the wedge rises. XLK formed a bearish engulfing on Friday and downside follow through would provide the first sign of trouble. As far as the wedge is concerned, a close that breaks the lower trend line would be bearish and argue for a continuation of the early April decline. This would then target a move to support in the 33.75 area.
The chart above shows XLF hitting 22.2 intraday and then closing near 22 as Friday's bounce failed. This is just a minor negative so far and I will be watching for downside follow through. As with XLK, a close below the lower trend line of the rising wedge would be bearish and argue for a continuation of the early April decline. I will remain bullish as long as the wedge trend lines hold for XLK and XLF.
Good weekend and good trading!
Arthur Hill CMT