Financial and bank stocks have been lagging the broad market for the past month. While the S&P 500 is posting new all-time highs, the Financial Select Sector SPDR® Fund (NYSE:XLF) is trading below its highs.
So what’s the big deal?
As you likely know, the financial sector is a big part of the economy and stock market, so bulls would prefer to see healthy financial and bank stocks.
On one hand, the price action can be called a bullish consolidation as buyers take a breather and allow overheated prices to cool off. On the other hand, the price action has taken the shape of a head-and-shoulders topping pattern and may be warning of further downside.
OK, so let’s turn our attention to today’s featured chart. As you can see, XLF has been lagging and is mired in a downtrend over the past month. This chart comes from Marketsmith.com, by Investors Business Daily!
During this time, XLF could be creating the right shoulder of a bearish head-and-shoulders pattern at (1). This pattern is also taking shape below the 50-day moving average.
If further weakness ensues at (2) and the price breaks below $35, the odds increase that financials/banks have put in a near-term high!
Will buyers show up here? Or, will bears continue to pressure XLF lower? Stay tuned.