XLF/Financials Update

As I said in the last post, Financials are one of our long term core/trend shorts. The story that Financials will benefit from higher rates to be is absurd unless the F_E_D is going to hike meeting after meeting with 50 basis point hikes, all indications have been that they are going to go slow and I just don't see how a 1/4 or 1/2 point off ZIRP is going to do anything for Financials who seem to have largely abandoned their previous banking business model to become stock/momentum chasers like everyone else.

I certainly don't think higher rates are going to help loans in which no one is borrowing from a Cap-ex perspective, I don't see any treason they will when rates are off ZIRP and despite the Housing data yesterday, that was 1 print. Again, I don't see how higher rates are going to boost an already weak housing market. These are just the bones of some of the arguments or disagreements I have with the Financials will benefit from higher rates. I think it's more likely that they are stuck between two business models that have both been made "MORE" mediocre by higher rates.

In any case, if you pay attention to the longer term charts you'll see that same trendily break in October of last year and the same triangle price pattern we have seen everywhere and that I have shown you in the past was not a naturally occurring price pattern, but rather an engineered one, you can even see evidence of it in XLF/Financials.

Finally, just so you can see the concept of market cycles that Wall St. (generically) sets up, you'll see the exact same bounce accumulation dates of May 6th/7th as the rest of the major averages and you'll see the exact same behavior in to higher prices that breakout above the apex of the triangle.

There are numerous ways to play a financial short from options to a straight XLF short to 2 and 3x leveraged bear ETFs like SKF and FAZ.

 XLF's most recent trend and a trend line break at the October lows with the same triangle price patterns . These are much too large to be consolidation/continuation price patterns, but I believe that's what they were constructed to make traders believe as we had pointed out in the past month that we'd be seeing false breakouts above those triangles as they are the most easily recognizable of price patterns even for neophyte technical traders.

 There are a couple different ways you can draw the trendines of the triangle, lets just go with the 2015 triangle that we see everywhere.Yesterday's bounce which seemed to be on the better housing data and the "Rate hike sooner" theme looks like a bearish closing candle with a tallier upper wick (higher prices rejected) and on increasing volume which is what I want to see from a potential reversal candle. Because of today's gap up in XLF there's a chance it may form a bearish engulfing candle which is normally taken as confirmation of yesterday's weaker candle with the taller upper wick.

Either way, XLF is above the apex of the triangle which is what we have been watching for somewhere around a month bow expecting breaks above to fail as many have and several have even given it a second shot.

 The long term 2 hour chart is negatively divergent in to the breakout above the apex area.

 As is the hourly chart which continues to accelerate in its deterioration 


 And the 15 min chart with more detail, but still a very strong timeframe is VERY clear about the underlying trend since the break above the triangle's apex, strong 3C distribution.

Swinging back around to the fastest 1 min chart and working out to monitor migration in the charts because this is the exact same set-up on the exact same date as all of the major averages...

 The 1 min trend shows accumulation at the sharp "V" bottom (the same "V" bottom in all of the major averages at the exact same data except the IWM which has a slightly wider "W"-like base. The positive or "Bounce" divergence just like all of the other averages (the same one that caused our 5/8 Week Ahead forecast to call for early weakness in to the beginning of last week followed by a bounce and taking it a step further, followed by a much larger, sharper decline).

I don't think I need to point out the 3C trend since.

 The 2 min chart confirms accumulation at the exact same area, Wednesday and Thursday , May 6th and 7th before Friday's May 8th "Week Ahead forecast".

Again, I think the 3C trend since is quite easy to see without any notation on the chart and also showing the process of migration or strengthening of the divergence.

 The 3 min chart shows the exact same features and migration with a bit of a cleaner trend with less noise.

 This is the 5 min trend and while I didn't mark divergences as usual, I did mark the areas they occurred in, you should be able to pick them out. The point here is the support or resistance created by these divergences are exactly what created this symmetrical triangle, just as we have seen in numerous other assets. In other words, it's not naturally occurring, it was purposefully put there for a reason. Technical traders will chase a breakout from such a large triangle even though these large triangles are most often tops/bottoms depending on the preceding trend, but technical traders won't even check the volume of a H&S price pattern to confirm its authenticity, so I doubt they care much about the triangle's size which is like a bill board Wall St. has put out to lead the lemmings where they want them. Can you guess why Wall St. might want demand at higher prices with divergences like the one to the far right where the breakout occurs?

 This is a closer look at the 5 min chart's trend which continues to migrate and see more damage.

Interestingly, the 10 min charts of the major averages have been the line in the sane or "Gas in the tank" for the bounce that was forecast to start last week after earlier week weakness.

 The XLF 10 min chart with a leading positive divergence at May 6/7 and the breakout above the triangle's apex starting May 8th. Again these are the charts that I've been most focussed on in the major averages, but they are everywhere. In other words, this is and always has been a Wall St. set u, we knew it in early May, we see it unfolding now and the results of that.

I do like Financials short in the area, it's an excellent entry with low risk. I may put out an additional trade idea for tracking purposes after I see how the charts develop before the minutes and if need be, after the minutes.