XLF: This ETF/ Sector has has formed a triangle pattern similar to the SPY triangle. After Friday’s rally XLF is now nearing the apex of this triangle. If XLF breaks this triangle it would mean more upside for XLF the financial sector and the overall market. The upside of the triangle is near 14.75, this would be a break of the triangle. To get a great confirmation of a breakout XLF would need to break above 14.86. Beyond that level resistance is at 14.92 and a break above this level and XLF would have a strong bullish confirmation. The bottom of the triangle is around 14.60 a close below this would negate the triangle pattern and if XLF was to remain trending upwards it would need to stay about 14.46.
One of the best ways to see if XLF would continue upwards is to look at the indiviual stocks that make up the ETF.
WFC: WFC (Wells Fargo) is XLF’s largest holdings with 10% of the ETF’s holding, which means if WFC moves XLF will also. WFC is at a very interesting price level and it could move upwards in a big way. WFC rallied hard on Friday after earnings and closed above a short-term resistance at 33.72. Where things get interesting for WFC is 34.28 and 34.59.
The 33.28 level is a big long-term resistance level which has stopped any rally since 2009 as you can see from this monthly chart. One thing we know from Technical analysis is that more a stock touches a resistance or support level the weaker it becomes which means this resistance level may be broken this time around. WFC has broken above this level before but never was able to stay above it, now it test it again. That is where the 34.59 level comes into play as this level capped the rally in the spring before WFC and the market sold off. WFC will not be able to challenge these levels if it does not remain above 32.64 a break below this level represents a break of the short-term uptrend and key support.
Summary: WFC is bullish above 34.38 and very bullish above 34.59 and WFC is bearish under 32.62
JPM:JPM (JP Morgan Chase) makes up 7% of XLF’s holdings. Friday after posting another couple billion dollar lost JPM rallied, like WFC it is nearing resistance and a breakout level although JPM’s levels do not go back to 2009. JPM resistance has formed an ascending triangle pattern with the top of this level being 37.03. JPM does have a large unfilled gap at 40.00 from when the big “hedge” trade news came out. A break of the 37.00 level could mean this gap gets filled. Support for JPM is at 35.66 but the more important support level is at 33.94.
BAC: BAC(Bank of America) makes up 4% of XLF’s holding and is 4th on the list of holdings. BAC has a more defined ascending triangle pattern with clear resistance levels. The uptrend from the June lows has formed the bottom of the triangle and the 8.22 resistance from June and February makes up the top of this triangle. BAC is bullish above the 8.22 level and the triangle price target is 9.20ish. BAC support levels are more defined than the other stocks as well, BAC gets a bearish warning below 7.66 and is bearish below 7.40
Summary: Bullish above 8.22 and bearish below 7.40.
Full Summary: XLF has not broken out of its triangle, but many of its top holdings appear to be nearing potential break outs. The most important stock to watch is WFC as it is near very important long-term resistance levels and a breakout would be very bullish. BAC and JPM have created bullish ascending triangles but have not broken out of their patterns, but if these stocks breakout than it would put additional bullish pressures on XLF.