After Its Brutal Sell-Off, This Sector Is Clawing Back

[Trading With Larry Benedict]( After Its Brutal Sell-Off, This Sector Is Clawing Back By Larry Benedict, editor, Trading With Larry Benedict The collapse of Silicon Valley Bank and Silvergate Bank earlier this year spooked the markets. Many feared that other banks could soon follow suit. That saw the Financial Select Sector SPDR Fund (XLF) lose around 15% in just a few weeks. But after the panic died down, XLF quietly built a base and began to rally. When we [checked in on XOP in late May]( (red arrow in the chart below), though, that rally looked like it could be stalling. After holding a key level, that rally resumed. And XLF now trades close to where it was before those banks collapsed. Today, I want to see what’s in store from here… Recommended Link [Elon Musk’s bone-chilling warning to Americans]( [image]( His warning never made the front page news… But Elon Musk is sounding the alarm on a surprising development that could – as he puts it – spell the end of civilization as we know it. It has nothing to do with green energy… AI… or technology. And it could affect every man, woman, or child in America – starting this summer. [Click here to see the full story behind Elon Musk’s warning.]( -- Overshoot to the Downside XLF was trading in a sideways pattern in the second half of last year. You can see this in the 50-day Moving Average (MA, blue line). Within that sideways pattern, there were several big swings. Each of these swings reflected the Relative Strength Index (RSI) crossing between overbought and oversold territories (orange circles). Financial Select Sector SPDR Fund (XLF) [chart] Source: e-Signal However, as we came into 2023, XLF started to break higher. Its peak on February 7 represented XLF’s highest level since April last year. But as buying momentum reversed in February (as it had in August and December), XLF also rolled over and fell. This RSI reversal in February started around a month before news of the bank collapses… However, as that story broke, XLF’s sell-off accelerated quickly. You can gauge the strength of that down move by the steep angle as the 10-day MA fell below the 50-day MA. But just like any big moves in the market, XLF overshot – in this case, to the downside. With sellers exhausted, XLF was able to build a base and rally while the RSI formed a ‘V’ and tracked higher from oversold territory. As you can see, that trend has continued since. The RSI has made a series of higher lows (orange line). Take another look: Financial Select Sector SPDR Fund (XLF) [chart] Source: e-Signal This steadily increasing buying momentum caused XLF to also trend higher (red line). When the rise stalled in May, XLF bounced off the red support level at ‘A,’ which showed that its rally remained intact. Its initial move faltered in late April. But the 10-day MA crossed back above the 50-day MA last month and has now begun to accelerate higher. That’s added to the bullish sentiment. So what am I looking for next? Free Trading Resources Have you checked out Larry's free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just [click here]( to check it out. Higher Lows and Higher Highs The steady climb in momentum has driven XLF’s rally. And for the rally to continue, positive momentum will need to remain – with the RSI tracking in the upper half of its range. The 10-day MA accelerating above the 50-day MA will add further evidence of XLF’s up move. While its $37.11 February high this year is still a long way off, the next test for XLF is the same as any other rally… That is, it needs to continue making higher lows and higher highs. We need to keep a close watch, however, if the RSI tracks and reverses from overbought territory… Such a move could see XLF retrace within the longer-term uptrend. Regards, Larry Benedict Editor, Trading With Larry Benedict Mailbag Do you think the financial sector will maintain its rally? Write us at feedback@opportunistictrader.com. IN CASE YOU MISSED IT… [“One-Stock Millionaire” IGNORES 99.9% of the Market]( During the 2008 financial crisis, millionaire trader Jeff Clark stunned the world when he managed to double his readers’ money 26 TIMES… CNBC caught wind of this and asked Jeff to come on live TV to explain his secret. Jeff politely said no. 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