2/18/2012 XLF #3

SPDR Financial Selected Sector Fund (XLF)

In the daily chart, the XLF cleared the interim resistance level @ $14.17, hit the immediate target @ 14.62 and it is running into a range consolidation. If you look at the consolidation area about 8 months ago, I think the XLF is going to do the same thing, ranging between $14.62 and $15.67. And I think this range is going to last until some major news breakout, whether it is the bailout in Greece or Moody’s rating reviews on the banks. Within this range, I use the peaks from the previous consolidation as reference to mark the minor resistances @ $15.19 and $15.4, the XLF may reverse or congest at these resistance levels temporarily. If you are going to trade this range, you can use the range top, target #3/resistance @ $15.67, as target if you wish to profit the whole range, otherwise the minor resistance levels @ $15.19 and $15.4 can serve as target points too. On the other hand, you should never let the XLF breaks below the range bottom, which is the immediate target @ $14.62; set your stop at this level and be ready to get out of your position when it breaks.

In the hourly chart, the XLF broke out from the down channel and found some resistance @ $14.78; even so, I think it is going to continue on the up move. If you pay close attention to the hourly chart, you will realize that the XLF is doing the exactly same thing it was doing about 3 weeks ago. Price first hit a resistance then it slowly channeling down until it bounced on the uptrend line (in green) and broke to a new high again. If you look at the second hourly chart with the Fibonacci studies, the first move retraced to the 61.8% Fib retracement level @ $13.87 and bounced, extending to the 100% Fib extension level @ $14.74. Now, go back to the first hourly chart. I drop another Fib retracement study for the second move and I find the XLF retraced to the 61.8% Fib retracement level @ $14.37 and bounced again. Since the first move retraced 61.8% then extended to 100%, I expect the same move will occur again here. Therefore, I throw in a Fib extension study in another chart (not shown here) to locate the 100% Fib extension level @ $15.19. Coincidently, the 100% extension level is also the 1^st target/resistance level @ $15.19 in the range of last chart, so I think the target/resistance level here is promising. Nevertheless, I think the XLF still has to clear the 6 months high @ $14.87 before it can go right to the target; otherwise, as I mentioned in the last paragraph, use the range bottom @ $14.62 as risk, get out of your position when the range is broken.

In the 15 minutes chart, I see a right angle broadening formation-descending pattern (RABFD) combined by the downtrend line and the resistance @ $14.18. The XLF just broke out from the RABFD last Friday; to the upside, you can use the overhead resistance levels I mentioned in the previous charts or you can use the following formula:

[Highest peak (A) - Lowest valley (B)]/2 + Breakout price (C) = Target

($14.87 - $14.39)/2 + $14.79 = Target @ $15.03

Instead of $15.03, I would set the target @ $15 since it is a whole number. That means you can either set the target at one of the resistance levels in the range, which are $15.19, $15.4 and $15.67, or the calculated target @ $15. Risk wise, I prefer the same range bottom @ $14.62 from previous chart.

I hope this post offers you some insight, thank you for reading and please feel free to give me some feedback.