Sunday, September 28, 2008

Financial Buy Signal

The chart above is of the SPDR Financial Sector ETF, the XLF (click to enlarge chart). The 50dema, not shown, is flat or nearly so and we have the second MACD buy signal, which is typically a strong signal. The XLF has already tested the March low at 22.29 on 9/19/08 so it should be able to break through that level. The base pattern is a double bottom which projects a target of 30. This would only be a possibility if it closes above the January low of 24.11. The low of 9/22/08 of 19.45 should not be taken out if this rally is for real, but stops should be probably be around the 18 area due to the volatility.

Currently, the index futures are flat in response to the bailout agreement announced this afternoon. It would be best to wait until 10 or 10:30 tomorrow morning to see if the markets will continue this rally. Do not buy the XLF until Friday's high is exceeded. If it pulls back for a couple of days, then use Friday's high as an entry pivot.

One fly in the ointment here is that the ban on shorting of financial stocks is scheduled to expire on October 2, which is Friday. If the ban is not extended and there is little gain this week in the ETF, it would probably be best to exit and call it a scratch rather than risk being long in case the shorts take it down next week.

As always, this is not a recommendation to buy this ETF. Do your homework before taking a trade.

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