Financials / XLF Update

Financials are looking interesting just as AAPL was looking interesting and still is.

This is one of the most common top shakeouts, usually defined in terms of a H&S top, although this isn't a textbook model of a H&S top. Even without a chart, the concept of the 3 places I'll short a H&S and the one place I will not are easily laid out and you can look at the chart after ad see the same pattern playing out.

The first area if we are lucky to identify it is the top of the head, the second area is the top of the right shoulder, however under no circumstances (unless it's for a quick trade, like a day trade)  will I short the break below the neckline, this is where most technical traders will enter a short and as such, it's almost ALWAYS shaken out as their stops are usually just above the neckline or former support, now resistance.

Wall St. knows this pattern which is in books nearly a century old and is still considered the optimal shorting strategy for a H&S so Wall St. runs a shakeout of new shorts by pushing price back above the neckline (former support, now resistance until price breaks through and takes out the new shorts' stops).

Thus the 3rd and last place I'll short a H&S top is on the shakeout move back above the neckline as it starts to roll over. I have posted this concept hundreds of times so it's nothing unique to XLF/Financials...

 While not a textbook H&S top, none are, it does have the break below the neckline (yellow box), the one place I WILL NOT SHORT a top pattern as the new shorts create an easy to shakeout bear trap, as soon as the neckline resistance is hit, buy to cover stops are triggered causing a squeeze and upside momentum which is not accumulation or support, thus when it's near its end, this is the last place I'll short a H&S top, exactly what we did with HLF for a 50+% gain at the July 2014 head fake.

The top formations tend to be real, it's the shakeout/head fake that is the manipulated part so as the shakeout runs its course, it's the last place I'll enter a short on a H&S top, which is where XLF is now.

The 6 hour chart shows this as not just another sideways consolidation/congestion area, but deep leading negative divergences, thus the top looks absolutely real and they usually are despite the games played around them.

On an intraday basis, XLF is seeing much more negative tone.

On a 5 min chart, it is looking like the end of the short shakeout is complete.

As for the January cycles (6th, 14-16, 29-2/2) you can see the last two and the distribution on a stronger 15 min chart, again suggesting the shakeout of shorts is complete and ready to round over.

FAZ (3x short Financials) is my personal favorite, take a look at its 6 hour chart vs XLF's (they are mirror opposite except for FAZ's 3x leverage).

FAZ 6 hour long term.

As for the intermediate 15 min, also compare vs FAZ and the base area of Jan 29-Feb 2nd remembering this trades opposite XLF...

FAZ pullback divegrence at the market base of 1/29-2/2 and leading since.