The Financial Select Sector SPDR (XLF) has been showing some bullish momentum lately, breaking out of its recent consolidation range. But is this the beginning of a sustained uptrend, or just a temporary surge?
Financial Sector SPDR (XLF): 1-hour
XLF 1-Hour Chart by TradingView
It’s earnings season in the U.S equity markets and with big names like Goldman Sachs, Bank of America, and Morgan Stanley reporting earnings this week, the financial sector is likely to see a big pickup in volatility, making the XLF ETF a market to watch for potential short-term opportunities.
Before we move onto the technicals, remember that directional biases and volatility conditions in market price are typically driven by fundamentals. If you haven’t yet done your fundie homework on equities in the financial sector, be sure to do so first before looking at the price action for opportunities!
The XLF has recently broken above a key resistance level around $42.47, which had previously acted as a swing high. This breakout could draw in further momentum technical buyers in the short-term if the fundamentals support it.
But the move may be limited though with the R2 Pivot resistance area and the minor psychological level of $43.50 within one daily ATR (around $0.46) away to potentially draw in short-term sellers or long position profit takers.
However, traders should be cautious of potential pullbacks in case financial sector earnings data comes in sour. And if so, then the first area to watch is the broken resistance at $42.47, which may now act as short-term support. If this level holds on any retracements, it could provide a good entry point for bulls looking to join the uptrend if the catalysts of the week aren’t too bearish.
For those seeking a deeper pullback, keep an eye on the potential support area highlighted on the chart, which aligns with the rising trendline and the convergence of the 50-period and 200-period moving averages around $41.70.
The moving averages are showing a bullish configuration, with the faster 50-period MA (blue line) crossing above the slower 200-period MA (pink line). This “golden cross” on the hourly timeframe often signals increasing bullish momentum.
When all put together, this may be enough to draw in technical buyers and potentially keep the recent upswing alive.
On the flip side, if sellers step in and push prices below the $41.70 potential support area, that may spark increased bearish technical sentiment; watch for a potential move to the support area around the S2 pivot level of $40.93. That’s more than one daily ATR move which could be an attractive short-term opportunity for sellers.
As always, keep an eye on broader market sentiment and upcoming economic data that could impact the financial sector. The current chart setup suggests a bullish bias, but prudent risk management is crucial in navigating these markets.
Once again, remember to do your own research and consider both technical and fundamental factors before making any trading decisions.