Finance sector continues to stall

The Financials SPDR (XLF) is also one of the four offensive sectors, but it continues to lag and gets is own special entry. Despite news the Bank of America and Citigroup will repay their TARP money, XLF failed to advance with the rest of the market. XLF broke below the triangle trendline and then stalled near its late November low. Technically, I can make the case for a bigger uptrend and a support zone around 13.6-14.2 (yellow area). Remember, XLF surged to a new reaction high in October and is still holding its Aug-Sep-Oct-Nov lows. A new high and no support break translate into an uptrend. Therefore, do not be surprised to see a bounce off support here. From a trading standpoint, the risk-reward ratio is quite good because support is at hand. Also notice that XLF broke to a five day high yesterday. A break below the lows of the last five days (consolidation support) would signal a continuation of the early December decline.

After an advance the last six weeks, the Regional Bank SPDR (KRE) is challenging resistance from the trendline extending down from early August. This trendline also forms a large falling wedge. Notice that KRE bottomed with a harami at the 62% retracement in early November. One could argue that KRE is in a long-term uptrend and the wedge was a massive correction. Within the wedge, KRE has been trending higher since early November and performing better than XLF the last six weeks. I am marking support at 20.7. A break below this level would reverse the six week uptrend.

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