Traders See More Highs For A Hot Sector ETF - SPDR Select Sector Fund - Financial (ARCA:XLF)

The Financial Select Sector SPDR XLF, the largest exchange-traded fund tracking the second-largest sector weight in the S&P 500, has been on fire since Election Day, but closed slightly lower Tuesday.

Upsides For XLF?

Still, some data points suggest professional traders are expecting more upside for XLF. XLF and rival financial services ETFs have been boosted by a confluence of factors, including speculation that the Federal Reserve will deliver multiple interest rate increases this year, the Trump Administration's efforts to lower corporate taxes and the new administration's plans to loosen burdensome post-financial crisis regulations on the sector.

“In other activity, there has also been some upside trading in XLF (SPDR Financials) involving March 24 calls lately. XLF continues to have trouble with the $23.76–$23.80 levels, where it has failed to break through five times prior since last December,” said Street One Financial Vice President Paul Weisbruch in a note out Tuesday.

Still, not everything is perfect for XLF, including the aforementioned looser regulations the Trump Administration hopes to unveil. The largest banks, including marquee names found in XLF, may not be on the receiving of the initial end of regulatory easing, if that even comes to pass. That is relevant to XLF because it is a cap-weighted ETF, meaning it allocates large chunks of its weight to the largest U.S. banks and financial services firms.

Light On The Horizon

Although there are challenges ahead for XLF, the ETF has ample room to reach some important price levels. The ETF has not resided above $25 since mid-2015 and would need to gain about six percent to get back to that level. Regarding all-time highs, probably not a reasonable near-term prospect for XLF in the near-term, the ETF resides about 50 percent below the highs seen in late 2006.

“XLF has seen modest inflows year-to-date ($70 million in), but if we go back to the Presidential election last year, we see a massive $6.9 billion in since then,” added Weisbruch.

XLF is a favorite of professional investors and traders so it frequently sees large inflows and redemptions, but

some rival ETFs have recently seen notable inflows.

Disclosure: Todd Shriber owns shares of XLF.

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