3/11/2012 XLF #4

SPDR Financial Selected Sector Fund (XLF)

The XLF ran into a range consolidation as I expected in the last post. Instead of using $14.62 as the range bottom, the XLF actually flipped around this price level several times. If you look at the XLF in the daily chart, rather than ranging between $14.62 and $15.67, the range is sitting between $14.4 and $14.97. Because the range top @ $14.97 is only $.03 cents away from the whole number level @ $15 and whole number always serves a good support and resistance level, therefore I think the short term range resistance @14.97 will be a decent level. I am also keeping the minor resistance levels @ $15.19 and $15.4 from the consolidation happened 8 months ago, price should reverse on these levels at least once before it goes higher. For the support levels, if the XLF breaks the short term range support @ $14.4, it should head toward the key support level @ $13.95. Yet, the 50 day moving average (50 SMA, grey line) will be another source of underlying support, beware of a bounce on the 50 SMA if you are playing this on the short side. Speaking of moving averages, the rising 50 day moving average crossed above the declining 200 day moving average (200 SMA, white line) forming a bullish golden cross and signals a continuous uptrend.

I am fifty-fifty about the current price trend. The daily chart tells me the trend is bullish while the hourly and 15 minutes charts are showing some weaknesses on the XLF. If you are playing the XLF on the upside, you want to wait until the price gets back to the short term range support @ $14.4 before you jump into a long position. Once you get in, you need to have a hard stop @ $13.9, $ .05 cents away from the key support level@ $13.95 (sometimes the market makes a “peek-a-poo” low just to shake everyone out). Otherwise, you can use the 50 day moving average as your risk level, which is currently sitting at $14.25, or the 200 day moving average, which is sitting at $13.66 and should move above the key support level @ $13.95 in the near future. For target, I suggest getting 30% to 50% of your position out at the range top @ $14.97 to secure some profit first. If the XLF breaks the range top resistance, expect reversal to occur at the minor resistance levels @ $15.19 and $15.4, try to thin out some of your position at these levels and let the rest rides up to the main resistance level @ $15.67.

If you want to play the XLF on the short side, it’s better to play this off the hourly chart. In the hourly chart, I see a half legit double tops pattern. The reason is because, on one hand, the middle valley is far too deep for a legitimate “M” pattern while, on the other hand, price action double topped at the same price level @ $14.97 and it’s at the top of the trend at the same time. Nevertheless, I’m going to regard this as a double tops pattern and play this on the short side since the risk to the upside is small here. The middle valley bounced at the range support @ $14.4, which is also the 61.8% Fib retracement ever since the XLF rose into the range. Consider that the $14.4 price level has massive support, this is where my target locates at. The ideal entry price for the short position will be the short term range resistance @ $14.97 but the current price @ $14.92 is a decent price for entry too since it is only $.05 cents lower. My risk for the short position is tight. At $15, besides it’s a whole number level, it is also the 1^st pivot resistance. I will set my risk @ $15.04 so that the market won’t shake me out if it makes a “peek-a-poo” high and drops back to the range immediately. If you are willing to put on more risk, you can move your stop to the resistance level @ $15.19. Downside to this is doing so will make your risk & reward ratio smaller but, on the upside, you can always average in your position and get a higher short selling price.

Here in the 15 minutes chart, I want you to take a look at the volume of the highlighted areas. Every time when the XLF comes close to the short term range resistance @ $14.97, trading volume declines. Compares to the trading activities at other price levels, no one was trading the XLF at the top of the range. Unless I see an increase in volume near the top of the range, I don’t think an upward breakout will happen for the next several days.

*From now on, I will write down trades as if I'm trading in a live account, some of the trades may trigger when some may not. Doing this can let me better evaluate my performance at the end of each month and see what I am lacking in my trades.*

Trade #1

Position: Sell short @ $14.92     

Target: Buy cover @ $14.4

Stop loss: @ $15.04

         

Trade #2

Position: Buy long @ $14.4

Target: Sell 50% @ $14.97, trailing stop sell 15%@ $15.19, trailing stop sell 15% @ $15.4, sell rest 20% @ $15.67

Stop loss: sell 50% @ the 50 day moving average when it hits and stop the rest 50% @ $13.90. If the 50 day moving average rises above the short term range support level@ $14.4, sell stop 50% @ $14.4 and stop the rest 50% @ $13.9

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