Home > Quick Charting The Trading Levels In These Financial ETFs (XLF, FAS, FAZ)

Quick Charting The Trading Levels In These Financial ETFs (XLF, FAS, FAZ)

September 16th, 2011

Corey Rosenbloom: We’ve been hearing a lot of attention – as usual – on the Financial sector (particularly in Europe), so let’s take a brief moment to see the key chart/trading levels we’re watching on the popular Financial Sector ETF (NYSE:XLF) and then peek at the wild Direxion Daily Financial Bull 3X Shares ETF (NYSE:FAS) and Direxion Daily Financial Bear 3X Shares ETF (NYSE:FAZ).

Let’s focus most of our chart-work on the XLF Financial Fund:

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Cutting right to the chase, the price is in a sideways rectangle consolidation (contraction) with upper confluence resistance at $13.40 and lower confluence support at the easy-to-remember $12.00 reference.

The Financial ETF becomes a potential breakout buy/reversal above $13.50 (the reversal signal is of course stronger the higher – and with more volume – price breaks above $13.50.

Otherwise the “gravitational pull” of price (path of least resistance) is to remain within the confines/boundaries of this trading range until we get our eventual breakout.

That’s not much to go on right now as price hovers at the “Midpoint Value Area” near $12.75 (also the 20d EMA) but unless you’re in intraday trader, watching these boundary levels and waiting for the breakout – one way or the other – gives you a good metric to develop a game-plan to trade.

A breakdown under $12.00 would be a serious negative development that would be expected to extend price to weekly chart targets.

In short, the Bulls would be expected to dominate (price/trend expansion) above the $13.50 confluence resistance just as Bears would be expected to dominate under $12.00.  Until we see a firm victory (Bulls or Bears), then we can expect price to trade between these levels.

I’m aware that some traders find the plain-vanilla XLF fund to be ‘boring,’ so some traders turn to leveraged financial ETFs to maximize potential profits (which carries the risk of increasing losses as well).

Just a reminder, the 3x leveraged Direxion Financial ETFs (FAS and FAZ) DO NOT follow the XLF – rather, they track the Russell Financial Sector so keep this in mind when trading.

Be sure to read the prospectus and learn as much information as possible before trading 3x leveraged funds – they don’t always work as assumed (especially long-term).

That being said, we’ll take a quick peek at the current FAS price levels to watch:

The “Trading Range” logic is the same.   The upper price boundary – which will soon form a confluence with the falling 50d EMA and upper Bollinger Band – exists at the $16.00 per share level and a lower price (and Bollinger) support line exists at $11.00 per share.

While the bullish FAS looks somewhat similar structurally to XLF, FAZ appears to be in its own volatile universe:

It’s not as easy to pin-point the price levels above – we have a sequence of falling highs and rising lows which can’t be considered a “Rectangle” as nicely as XLF and FAS.

There’s nothing wrong with that, but keep in mind the bearish FAZ fund is currently three times more expensive than the bullish FAS fund.

Watch the $55.00 level as a trading reference (trendline) then the $50.00 level on any downside move in the bearish fund (upside move in the underlying financial sector).

Continue to study the underlying (Financial Sector) for clearer direction on how to create your game-plan and trades accordingly.

Written By Corey Rosenbloom, CMT From Afraid To Trade

My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.



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