Bank ETF Flirting With Big Breakout
The Financial Select Sector SPDR (NYSE: XLF), the largest and most heavily traded ETF tracking the financial services sector, closed down almost 0.6 percent on Tuesday as traders mulled what could happen next in Cyprus.
As eurozone fears have risen in the past few days, XLF has lost 0.82 percent in the past five trading sessions.
Bank bulls can take heart because XLF, which has nearly $11.5 billion in assets under management, is still up about eight percent year-to-date and the ETF's uptrend remains in tact. In fact, XLF appears to be on the cusp of a major technical breakout.
As noted technical analyst Chris Kimble points out, both XLF and the KBW Bank Index (BKX) are currently bumping up against resistance provided by their 2007 highs. Those 2007 highs coincide with the 38.2 percent Fibonacci retracement for level for both BKX and XLF.
Named after the Italian mathematician Leonardo Fibonacci, Fibonacci retracements are used by technical analysts to identify potential support and resistance areas at 100 percent (a security's recent high), 61.8 percent, 50 percent, 38.2 percent and zero percent.
XLF closed at $18.17 Tuesday and the 52-week high for the ETF is $18.48. A break of that upside, particularly if it occurs on strong volume, could put XLF in position to trade above $20 for the first time since the third quarter of 2008.
Kimble notes that broader market would benefit if XLF could take the aforementioned Fibonacci resistance and that it is "ironic" that the sector is facing this key technical area Cyprus dominating the headlines.
He is correct about a bank breakout potentially benefiting the broader market because financial services is the second-largest sector weight in the S&P 500 at 16.2 percent. Only technology is larger with a weight of 18.1 percent.
XLF's top-five holdings are J.P. Morgan Chase (NYSE: JPM), Berkshire Hathaway (NYSE: BRK), Wells Fargo (NYSE: WFC), Citigroup (NYSE: C) and Bank of America (NYSE: BAC). Those five stocks combine for about 37.5 percent of the ETF's weight.
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