XLF ETF Worth Watching As Financial Stocks Continue March Towards Self-Destruction

Oct.14.11 | About: Financial Select (XLF)

The backdrop behind all the investing/speculation is the global sovereign debt crisis, for which the only solution is a new international monetary agreement involving some type of debt cancellation. I expect this to involve the re-monetization of gold and corresponding new monetary policy initiatives to play a role in debt cancellation.

Also, a part of this trajectory is the collapse of the Western banking stocks, which includes many large multi-national banks traded on the public markets. The collapse of Lehman and Bear Stearns in 2008 were the start of a self-destructive cycle that is not yet complete, but remains inevitable, inching closer the longer the political will to establish a new international monetary agreement remains absent.

Although I am not fond of shorting (especially stocks) in an environment characterized by inflationary monetary policy, XLF, the ETF tracking major US banks, remains worth watching. Since its peak above 37.50 in 2008, it fell to $6 before bouncing back to above $16.50, coming just shy of the 38.2% Fibonacci retracement of the 37.50 - 6 move. The chart below includes my technical commentary.

click to enlarge

Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.