Depicted on the three Daily charts below are a ratio
comparison of the Financials ETF to a Major Index in the U.S.,
European, and Chinese equity markets. They show how the ETF has advanced
compared to the Index. In all three cases, the Financials have outperformed the
Index.
The U.S. XLF:$SPX ratio chart shows that the
Financials ETF is up against formidable resistance and the RSI is nearing
overbought territory. The rising 50 sma is still holding just above the rising
200 sma. Any breakout above the last swing high would likely be met with more
resistance until the RSI reverts back to, at least, the 50 level. We may,
however, see another attempt to make a higher swing high first. Under such a
scenario, I'd look for a negative RSI divergence to signal that a pullback may
be around the corner, which could then send the RSI back to 50, or
lower.
The European
EUFN:$STOX50 ratio chart shows that the Financials ETF is
nearing formidable resistance; however, the RSI is not yet overbought. Also, the
50 sma has just crossed above the now-rising 200 sma, forming a bullish "Golden
Cross." We may see an attempt at a higher swing high. Under such a scenario, I'd
look for a negative RSI divergence before considering that a pullback may be
around the corner, which could then send the RSI back to 50, or lower.
The Chinese
GXC:$SSEC ratio chart shows that the Financials ETF remains
firmly in uptrend compared with the Shanghai Index. However, the ETF itself
(bottom line chart) is nearing prior major resistance, while the Index (first
line chart) remains in downtrend. Both the 50 and 200 smas are in uptrend and
the distance between them is widening. The RSI has dipped from its overbought
condition, along with a recent pullback in price, but it remains above the 50
level. We may also see an attempt at a higher swing high. Under such a scenario,
I'd look for a negative RSI divergence before considering that a pullback may be
around the corner, which could then send price down to, perhaps, its 50 sma, or
lower, and the RSI below 50.
China is still the wild card of this
group, and both their Financials ETF and Shanghai Index are important
ones to watch for any signs of further weakening and a potential "falling off a
cliff" on the Index. Such a scenario, if left to deteriorate further
without a stabilizing influence of monetary and/or fiscal/economic
intervention, may have a negative global impact on,
particularly, the European and U.S. equity markets.
SB's DISCLAIMER: The information contained within
my posts may not be construed as financial or trading advice. Please do your
own due diligence before engaging in any trading activity.
