By: Elliot Turner
From the open today, the financial sector weighed on the broader markets. The Financial Sector ETF (XLF) opened just under the critical $14 level, which it had held as support since October. In looking at the daily chart, this one can clearly see the importance of this level. Keep an eye on this level moving forward, as it will be a crucial tell as to the broader market’s direction. Should the weakness in the financials persist, we might very well see lower prices in the market in the near future.
On Thursday, sellers overtook $14 with massive volume; however, Friday saw the XLF bounce off of the 200-day moving average and rally back towards $14. In zooming in to a 15 minute chart, today saw the XLF put in a double-top at the $14 level. What once had served as support now served as resistance. Past support levels generate a lot of supply once broken and provide good liquidity points for initiating short entries. Additionally, resistance at this level confirms that lower prices should be in store for the financials in the near future.
We are seeing this similar trend play out across several sectors. Long-term bases are now serving as resistance on bounces, ultimately leading to lower prices on the downside. Another excellent example of this is Caterpillar (CAT) at the $54 level.
As long as this theme continues to play out–past support providing strong resistance–I will lean short in this market. Today we saw the market try to rally in the early-going and each sector I follow met solid resistance at recent support levels.
