XLF (Financials) & FAZ Update

I've been popping through numerous watchlists as often as I can between looking at the market and other things. Today I decided I'd post a larger XLf (Financials) using FAZ (3x leveraged Short -Inverse Financials) and FAS (3x leveraged long Financials) as part of the multiple time frame/multiple asset confirmation.

While ETFas are managed to (typically) track the 1-day performance of the underlying asset (for example SPY tracks the S&P-500), while the percent change is usually very close (even for the 2 and 3x leveraged ETFs), the actual volume or "demand" in the sense of volume, is not matched and totally different. I've mentioned numerous times that I often find leveraged ETFs give signals earlier than their non-leveraged counterparts or underlying asset. I suspect this is because the leverage makes timing more pertinent as gains and losses are magnified by the leverage. In any case, since 3C uses TSV-based data for its input which is Worden's proprietary indicator, "Time Segmented Volume", you can see just by the name that 3C and TSV use volume as a significant part of the calculation, thus despite the related ETFs tracking similarly, the demand component is very different, which is one of the reasons I use different assets in the same sector to see if there is "Multiple Asset Confirmation".


I would say that XLF broadly is in a good position to see a downside move of consequence, in saying "consequence", I mean I believe this is well beyond a 10% pullback or the media's 20% number they like to use, I believe we are looking at a primary trend move to the downside which means the October lows taken out and continue to move to lower lows. There are numerous fundamental catalysts for Financial weakness specifically, not the least of which is the contagion from a Greek default/exit which we'll touch on in the Daily Wrap.

In any case, here are the charts for XLF, FAS (3x long Financials) and FAZ (3x short Financials)...Remember, XLF and FAS should have similar confirming signals, FAZ should have nearly opposite 3C signals for confirmation.

 The trend in XLF (Financial sector) on a daily chart which seems to have run in to another large triangle-based price pattern. Triangles this size are not consolidation/continuation patterns, they are far too large. Typically a large triangle like this following an extended uptrend is a top, a large triangle following an extended downtrend is typically a bottom.

Note the increase in volatility or "Peeling" away from the trendline after the trendline is broken at the October lows with upside volatility after the October lows and in to a tightening, pinching range like many other of the averages, sectors and stocks.

 Taking a closer look at the apex area (point of the triangle which usually sees a highly directional price move as the apex comes to a point just like inched Bollinger Bands), there seems to be a bear flag of sorts (not textbook as far as the preceding trend). Volume is also not correct for a bear flag, but this does seem to be some organic price pattern.

Friday's break below the flag and close right at support is the perfect signal on increased volume for a bounce such as we saw today.


From my normal perspective, given the rather narrow range of the flag, I'd be looking for a short XLF entry or add to above the top end of the flag's range, a Crazy Ivan shakeout. I'd be looking for short term charts to confirm distribution above the range for the entry above $24.60 which is where I'll be starting my price alerts.

The long term 6 hour chart of XLF is showing the last major accumulation at the October lows and significant strong distribution in to 2015 and through the triangle area.

This is FAS-3x long Financials on a 4 hour chart, also showing the same October lows accumulation and leading negative distribution signals in to the triangle area.

The FAZ 3x short Financials is showing a confirming leading positive divergence.

XLF 30 min also shows with more detail (stronger divergences) the same exact trends as the multi-hour charts in all 3 ETFs, significant October lows accumulation and leading negative divergence that have grown stronger in to the triangle.

FAS 30 min chart (same timeframe as XLF above) shows the same thing, accumulation at the October lows and leading negative distribution in to the formation of the price triangle.

FAZ which is the 3x inverse of both, confirms on the same 30 min chart with a leading positive divergence, note longer term though the October highs in FAZ on all of the charts October highs which would not surprise me as I believe this will be one of the biggest movers.

This is XLF's bear-flag-like area at the yellow arrows. Note the recent leading negative trend on the 15 min chart, the same 15 min charts I have been watching in the broad market for turns to the downside, all of which have done so with SPY catching up last week.

FAZ being the inverse shows the area like a Bull flag and has positive divergence in to the flag-pole and the flag with only a small recent negative on the move in the market expected today from Friday's Week Ahead post.

FAS 10 min with a larger leading negative divergence on a 10 min chart in the bear flag area similar to XLF.

Note April 2nd where the overall forecast for a market bounce based on the triangle's all coming to an apex and the 3C chart action since that forecast moving forward in to price gains with a strong leading negative all last week leading to Friday's lows, which is interesting, unless the market knew a week in advance about the Chinese issues Friday...

Now to the tactical time frames, XLF 5 min with the same leading negative divergence leading to Friday's lows, there's no confirmation whatsoever of today's oversold bounce expected market wide from Friday's "WEEK AHEAD" post.

And FAZ 5 min is confirming with an equal/opposite leading positive divergence leading to Friday's gap up.

XLF 2 min is just showing us a closer timing signal going negative in to last week and Friday's gap down, again no positive divergence even on a 3 min chart, suggesting any upside we can get in Financials is a gift from here, although I still like them broadly speaking in this area for the primary trend or trend trades.

XLF 2 min shows a weak (2 min) leading positive divergence in to Friday's FLAME OUT area in the afternoon as stops were run and accumulated for an oversold bounce. Note today's 3C distribution signal in to the oversold bounce today.

1 min XLF is pretty flat, this will likely be the "timing" timeframe for actual tactical execution of a trade idea.

While the 1 min FAZ is already in a leading positive divergence.

I'd set price alerts for slightly higher XLF and slightly lower FAZ prices, hopefully this gives us a good chance to enter at a tactical area of lower risk, higher gains while also getting in on what appears to be a significant strategic trend change coming.