Financial stocks have been rising over the last few days causing XLF to rise as well. The current price action has formed a Broadening Top Pattern.
The Broadening Top Pattern represents a rare reversal pattern and typically represents a top and being bearish. It is the opposite of the Symmetrical Triangle pattern that was previously formed in the market. It starts after a strong move upwards. The Pattern is then formed by a a stock or index making new high and a new swing lows, forming upward and downward sloping trendlines which represents the swing high and lows.
Here is a textbook example of a Broadening Top and some information on the broadening top:
XLF's Broadening Top:
On XLF we have the new high and lows have been made each day, the first high and low was on Monday, next low on Tuesday and another set of high and lows on Wedensday. This has formed the broadening top pattern but it is early in the pattern.
XLF can still make new highs and lows before this pattern breaks as this pattern is still in its maturing phase Additional swing highs and lows further confirm this pattern. In order for this pattern to break XLF would have to break $12.83 this would confirm a break of the bottom of the broadening top for it to be voided XLF would have to break 13.49.
Price Target: Currently this pattern has a price target of .40 cents, but this target can grow if XLF continues to make new highs and lows. The price target for a Broadening Top is the distance from the highest high and lowest low.
The broadening top is a rare pattern and difficult to trade since it can continue to make new highs. But it is bearish in nature so it can difficult to time. The last few times XLF has had a bearish pattern form and break it lead the market lower. If it does break the broadening top, it should weaken the market.
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