Financials have been the talk of the town since the start of earnings season and they have made a significant move to the upside. But can this rally sustain? A look back gives some clues. Starting with the breakout over a rising channel and then a fallback to retest the channel in September 2017, financials looked great. They continued that move higher to the January peak and then started to pullback with the market.
A second dip lower in March found support at the 200-day SMA and they began to consolidate. But financials have stalled in that consolidation ever since. Financials ETF XLF shows it stuck under resistance, unable to reclaim the prior high, and badly lagging the rest of the market. In that context, the rally since earnings season started is a dud – so far.
But there's a silver lining. Last week the ETF pulled back to a higher low and then reversed. It is now moving higher and trying to push over that resistance. Will the 4th time be the charm? Momentum supports a push higher with the RSI bullish and rising and the MACD positive and moving up. If this latest move is sustained, the financial sector could help continue to drive the broad markets to new highs. The key level is sustained price action over 28.40.