Sam Collins

Financial Select SPDR Shows All is Not Well

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Financial Select Sector SPDR (XLF) -- This index of the S&P 500's (SPX) financial components includes an array of diversified financials from investment management to commercial and investment banking.

On Dec. 20, the Trade of the Day stated, "Since May 31, the index has tumbled by more than 25% and now appears to be trying to establish a bottom with the stochastic arching up. But the low of Nov. 26 at $28.10 must hold or else it will add a new leg to an already steep decline. If that were to occur, it is doubtful that the S&P 500 (SPX) lows made in August and November at 1,407 could hold, either."

On Jan. 24, we reported, "The low of Nov. 26 was broken, as was S&P (SPX) 1,407. But the first real daily reversal (up) since the big break at 1,375 occurred yesterday, and the XLF could rally through the downtrend channel and the 50-day moving average before running into trouble at just under $34. This rally presents investors with a good opportunity to offload their troubled financial stocks."

This proved to be a good analysis, since the XLF fell to under $24. The current rally in the financial arena appears to be just another bounce in a bear market. Until the channel trendline above $27 is broken, the channel is intact.

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