Friday’s ETF Chart To Watch: Financial Select Sector SPDR (XLF, JPM, WFC)

Stoyan Bojinov: Stocks endured another day in red territory as weaker-than-expected corporate performance results on the homefront took their toll on investors’ confidence. Industry bellwethers, including auto giant Ford, are taking a hit on bottom line revenues as economic uncertainties from overseas have impacted sales. Looming threats from the eurozone have bolstered the U.S. dollar higher, further eating away at earnings and prompting many to trim their outlook going forward. Despite coming in better than expected, the latest weekly jobless claims report was largely overshadowed by general feelings of uncertainty; this figure came in at 350,000 while analysts were expecting 365,000 [see also The Different Types Of Gold Futures Compared].

Earnings season continues full steam ahead on the homefront as two financial bellwethers are slated to report later today. JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) are both due to report earnings before the opening bell, which brings our focus to the State Street Financial Select Sector SPDR (NYSEARCA:XLF), a popular ETF among both traders and investors that makes significant allocations to each of the two financial giants [see also Financials Free ETFdb Portfolio ETFdb Pro Members Only].

Chart Analysis

XLF appears to have completed a healthy correction since recently topping out at $16.01 a share on March 27, 2012; notice how this ETF has bounced off its 200-day moving average (yellow line) and appears to have resumed its longer-term uptrend, moving along a rising support level (blue line). Although a number of fundamental factors can still knock XLF off its upward trajectory, from a technical perspective, this ETF appears poised to extend gains in the coming weeks; notice how since its most recent bottom at June 4, 2012, XLF has managed to establish higher-highs and higher-lows, which could be interpreted as a sign that buying pressures are growing [see also 3 ETF Trading Tips You Are Missing].

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Investors should be aware that earnings season volatility may very well drag this ETF back to $14 a share, if not lower, before it is able to really get back on track [see ETF Technical Trading FAQ].


Depending on how markets react to the latest round of results from the U.S. financials sector, XLF could be in for a wild trading day. A bullish reaction at the open may bolster this ETF as high as $15 a share, although traders should be quick to lock-in profits since profit-taking pressures have a tendency to accelerate unexpectedly in uncertain environments. On the other hand, worse-than-expected results from Wells Fargo and/or JPMorgan Chase may very well welcome back the bears to Wall Street for another session. In terms of downside, XLF has support at the $14 level. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit-taking techniques.

Written By Stoyan Bojinov From ETF Database  Disclosure: No Positions.

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