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Where Is the Bounce in Financial Stocks?


The financials could still get a bounce here but given the murky waters, on a relative basis versus the S&P 500, the sector could outperform over the next two months.

Last week I pondered whether the financial sector might be due for a bounce soon. (See Are Financials Ready for a Bounce Higher?)

Thus far the financial sector has not bounced. As we are heading into a long weekend and the tape is choppy I wanted to give a brief update.

I don't want to be yet another trader voicing how indecisive the market currently is given the many strong crosscurrents, but I must admit that it truly feels like the market could break in either direction. While my bearish side has somewhat more conviction at this point, the bull case just doesn't seem to want to leave my cranium. The major uptrend since September 2010 in the S&P 500 (SPY) remains intact and since fighting the trend has never been a winning strategy for me I should not lose sight of that.

I still feel that the financials could get a bounce here but given the murky waters I feel more comfortable saying that I think on a relative basis versus the S&P 500, the financials could outperform over the next two months or so. My reasoning remains as last week: 1) the financials have already lagged the broader market for some time and 2) the financials are coming into some technically supportive areas.

Note the divergence (read 'under-performance) of the Financial Sector ETF (XLF) as compared to the S&P 500 since March.

Since last week the XLF Exchange Traded Fund has broken out of the trading wedge and just below the 200 day moving average (red line), but note the stronger support (former resistance from 2010) at $15 just below.

Click to enlarge

Given the above-mentioned lack of clarity in broader markets, the major support and telling level at SPX $1300, and upcoming long weekend, I won't be leaning out of any windows and putting on a trade this week. I do feel, however, that the relationship of the financials versus the broader market warrants close attention as we roll into the summer and as such found this worth sharing.

Happy trading!

Editor's Note: For more great content from Serge Berger, please visit
No positions in stocks mentioned.

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