Some Quick TA on XLF

• stevenplace
• March 16th, 2009

When looking at charts and price action, you don’t want to focus on the underlying sector fundamentals. The fundies can play a part later, but have no place in technical analysis. So the question you want to ask yourself is: are there chart patterns that will help increase my odds in a trade. So with that in mind, let’s take a look at XLF.

XLF is coming down to a pretty strong downtrend line. Big time resistance. Also coming close to the 50 day moving averate, which is declining. Also printed a candlestick that is representative of slowing momentum. Let’s zoom in:

The 8.50-8.70 level is a huge level of multiple resistances. You’ve got a previous level of support, a gap fill, and a previous level of resistance. Clearly the odds are not in favor of further upside without at least some sort of weakness at these levels. So what play can we use?

Well try this one:

Sell -1 1/3 BackRatio FAZ 100 Mar 09 40/50 Call @2.25 or better

This is a play on the 3x inverse of a financial index. You make money if the stock stays below 56. So if you are wrong on this play and momentum continues, you will keep your credit, but if we get some weakness in the financials, you stand to make some serious money. There is unlimited risk to the upside, so be careful.

That play wasn’t optimal, but something similar could work as well. You could also try a covered call, or just buying FAZ outright.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

Tickers: xlf

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