Financial Funds

There are Bull and Bear ETFs along with double leveraged ETFs. FAZ and FAS are triple leveraged ETFs for the traders with the hungry appetite leveraged trading. The ETFs that track specifically the Financial Sector are FAS, FAZ, IYF, IYG, SKF, UYG, and XLF.

In this group are the ETFs that track the banks stocks or sector. This includes the ETFs KBE, KRE, and RKH. KIE is the ETF that tracks the Insurance Industry.

Below under “Comments, Analysis, and Recommendations”, I will write my comments for the Financial Funds giving you my chart analysis. I want to give you good evidence as to why I believe the Financial Funds are heading higher or lower. I base my analysis on several technical tools. I use Exponential Moving Averages, Elliott Wave Analysis, Fibonacci, Japanese Candlestick patterns, trend lines, and support/resistance lines.

My goal is to provide you with the information needed so you can make the best trading decisions. My goal is also to help you to become profitable and most of all to help keep you from loosing a ton of money. I will provide you the potential price targets to take profits and stop loss levels to help preserve your trading capital with these Financial Funds.

Click on the desired Financial Funds link below to view the chart.

Comments, Analysis, and Recommendations

The Financial Funds traded higher and made the 76.4% Fibonacci retracement level. The candlestick for XLF today was bearish even though it closed up. It traded higher into the retracement level, but traded near the lows for the session. This is a sign of weakness.

With the retracement level of 76.4% and the price action today, the price must decline soon if my Elliott Wave interpretation is correct. The 1/7/10 high is the critical resistance and the price cannot break that level if my count is correct.

Look for a five-wave decline before jumping in on the short side. Waiting on a five-wave pattern will help prevent those annoying small losses.

Be a smart trader!

Craig Wells

Last night I said the Financial Funds had a five-wave move to the downside indicating the next leg down has started. There may be reason for some doubt tonight. The drop from the 2/22/10 low could potentially be a double zig-zag corrective move down. The move today is not a five-wave pattern up right now. Tomorrow will be very important for the wave interpretation.

Today’s price action looks like a potential flat that could be complete with the mid-day high. A break above today’s high will pretty much cancel the view that the next leg down is underway. It will indicate that the correction will last a little longer and retrace a little more of the initial decline.

Be a smart trader!

Craig Wells

The Financial Funds potentially started their next leg down with today’s price action. Where the Major Index Funds do not have a clear five-wave pattern as of today, XLF has a definite five-wave pattern down. This is a sign that the next leg down has started.

The price fell straight down from the 61.8% Fibonacci retracement level. The price bounced off the low today, but turned down before the close. The low held, and the small correction could be complete. If so, today’s low will be taken out in short order. I do not expect the price to see the 2/22/10 highs again for a long, long time.

Aggressive traders may take positions with a break of today’s low. I would use a very liberal stop and use the 2/22/10 high as my stop loss. I recommend moving the stop lower once there is another five-wave move to the down side. That would give us wave 1, 2, and 3. Since wave 4 cannot move into the price action of wave 1, the stop can be moved to just above wave 1 low. A more liberal stop would be the wave 2 high. I will discuss this in more detail when warranted. It should be only another couple of days.

Be a smart trader!

Craig Wells

XLF has had a good bounce as have the Major Indexes. However, I must remind you that the Financial Sector did not make new highs in January as the overall market did. XLF actually made lower highs and lows. This is a major divergence and not a good sign for the future price of financial sector.

The bounce from the 2/5/10 low is corrective. The price should fall to lower lows in the upcoming week or two. The bounce has retraced 50% of the decline from the 1/7/10 high. The price could bounce to the 61.8% level; However, I doubt it. If the price makes the 61.8% retracement, I believe it will not stop until it gets to the 78.6% level.

The price currently sits at stiff resistance formed by the congestion area formed by the previous fourth wave. The Elliott Wave count also indicates that the pattern is complete or nearly so. A drop below the 2/10/10 high is the first warning and a drop below the 2/12/10 low will be the second warning. A fall below the 2/5/10 low is confirmation.

The Federal Reserve has raised the Discount Rate. This confirms the technical analysis up to this point. The market makers already were betting on this. This will affect many investments from the U.S. Dollar and everything else tied to it. You need to be careful with any investment betting on higher prices. Do not get caught with your pants down!

Be a smart trader!

Craig Wells

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