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Looks like more downside to go for financial ETFs

May 16, 2011 6:50 AM ETXLF, UYG, SKF, FAZ
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Seeking Alpha Analyst Since 2007

Bruce Powers has been involved in the financial markets for over 20 years, as a technical and fundamental analyst, manager, trader, educator and writer. He is currently Head of Trading Strategy Development at Relentless 13 Capital, a cryptocurrency and blockchain company, and Corporate Advisor to Chronos Futures, a systematic trading strategy developer. 

Previously, Bruce was Co-founder and Co-chair of the Dubai Chapter of the CMT Association. He was also President at WideVision, online publisher of the MarketsToday.net Middle East financial portal, as well as Chief Technical Analyst at the portal. For the past nine years Bruce has written a weekly technical analysis column on the UAE stock markets for the Gulf News newspaper, the leading English newspaper in the Middle East, and he has appeared over 150 times on TV business news shows. 

Bruce is a CMT® charter holder, a member of the CMT Association, and earned his MBA in Finance from the Eller College of Management, University of Arizona, USA. 

 The SPDRs Select Sector Financial ETF (XLF) has broken down out of a bearish descending triangle formation closing last week at $15.77. XLF closed right at potential support of the 200 day exponential moving average (ema), 50% retracement of the uptrend measured from the late November 2010 low (light blue), and the 38.2% Fibonacci retracement level of the uptrend measured from the late August 2010 low (purple).XLF Daily Chart

Bearish confirmation will come on a close below these indicators, with $15.71 being the low price (38.2% Fib). A pullback from here could create a new short entry setup.

Another way to play the weakening of financials is with the ProShares Ultra Financials (UYG), ProShares UltraShort Financials (SKF), and Drexion Financial Bear 3x Shares (FAZ). All have 50 day average volume of greater than 1.5 million shares.

The chart on the ProShares Ultra Financials (UYG) shows a bearish breakout of a symmetrical triangle formation. UYG broke out on Thursday with follow-through to the downside on Friday.UYG Daily Chart


There is a strong potential support zone close by where UYG could bounce to test resistance of the triangle (previous support) before continuing lower. The change in trend along with the triangle breakout should provide enough downside force for UYG to trend below this support zone.

This support zone is identified by the bottom of the triangle ($64.31), previous resistance from November 5, 2010 ($64.43), confluence of two Fibonacci retracement measurements, and the 200ema ($65.08).

As an alternative to shorting the two ETFs discussed above, one could look to go long the reverse ETFs, SKF or FAZ.SKF Daily Chart

The chart patterns for each are similar showing very clear bottom symmetrical triangle formations. Each is now trading above their 50ema’s on the daily charts. (www.etf-portfolios.com)FAZ Daily Chart


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