XLF Head & Shoulders Top on 15-minute Chart

Comment

Comment by Craig Wells on December 3, 2009 at 12:54am

XLF has done nothing but move sideways since September. I have stated in previous post that I believe a corrective top is complete and I continue to believe it. The corrective pattern has turned out to be more complex than anticipated. I will attempt to back it up using Elliott Wave Analysis.

The Financial Sector has been weak relative to other sectors and the overall market indexes in general. The financials have not even come close to making new highs as the major large cap indexes have made higher highs. This is a significant divergence and the reason I believe that the price is heading for lower prices.

XLF topped on 10/14/09 and it has traced out a five-wave decline to the 11/2/09 low. Since then has been nothing but a corrective pattern, which I believe is not complete.

The high of 11/11/09 completed wave-A. The overlapping nature of the pattern to the 11/27/09 low, completed wave-B. The rise since then has taken on a three-wave pattern up. Since we have only three wave up since the 11/27/09 low, I expect one more push to break above the 12/1/09 high. This should complete the corrective pattern. I have labeled the chart with my counts. This should come to a conclusion by tomorrow. From there, we can expect new lows ahead.

A break below the wave-B low will signal that the correction is over and the price is heading for new lows.

Comment by Craig Wells on November 18, 2009 at 11:18pm

I stated in the last update a strong case for a top using Elliott Wave analysis. I also stated that there was an incomplete A-B-C wave correction. Now I want to make a case that the A-B-C wave correction is complete and a major move down in wave three is expected in the next couple of weeks.

Like in the last update, I am using a 60-minute chart to show more clearly the Elliott Wave count. You can see a clear five waves down from the 10/14/09 top labeled with circled numbers. This completes wave I on 11/2/09 with a red square around it. Since then, we can count a 3-3-5 wave pattern indicating an Elliott Wave Flat pattern. This is shown on the chart as wave a, b, and c. As you can see, wave c is a five wave impulsive pattern. In Elliott Wave analysis, wave c is always a five-wave impulse wave in flats and zig-zags.

This completes wave II on 11/11/09 shown on the chart with a red square around it. Since 11/11/09, I can count a complete five waves down. If not complete, it will be with one more push early Monday below the 11/13/09 low.

How could I be wrong? The price action from the 10/14/09 high could be a larger corrective pattern, not a change in trend. What I have labeled as wave I with a square could be wave A and wave II with a square could be wave B. Wave C would be incomplete. Even in this scenario, wave C should fall to at least the 13.00 level. That is where wave C will equal wave A and there is an unfilled gap from 8/3/09 at that level.

One more thing to mention is the Fibonacci retracement levels from the 10/14/09 high to the 11/2/09 low. Wave II hit a roadblock at the 61.8% retracement level. The candlestick patterns on the 120-minute chart also indicate a wave II top.

Comment by Craig Wells on November 15, 2009 at 5:35pm

XLF has found itself in a critical juncture. I have given plenty of reason for a top in the last post. Now I will give the critical levels that would confirm a top in XLF is complete.

I stated in the last update a strong case for a top using Elliott Wave analysis. I also stated that there was an incomplete A-B-C wave correction. Now I want to make a case that the A-B-C wave correction is complete and a major move down in wave three is expected in the next couple of weeks.

Like in the last update, I am using a 60-minute chart to show more clearly the Elliott Wave count. You can see a clear five waves down from the 10/14/09 top labeled with circled numbers. This completes wave I on 11/2/09 with a red square around it. Since then, we can count a 3-3-5 wave pattern indicating an Elliott Wave Flat pattern. This is shown on the chart as wave a, b, and c. As you can see, wave c is a five wave impulsive pattern. In Elliott Wave analysis, wave c is always a five-wave impulse wave in flats and zig-zags.

This completes wave II on 11/11/09 shown on the chart with a red square around it. Since 11/11/09, I can count a complete five waves down. If not complete, it will be with one more push early Monday below the 11/13/09 low.

How could I be wrong? The price action from the 10/14/09 high could be a larger corrective pattern, not a change in trend. What I have labeled as wave I with a square could be wave A and wave II with a square could be wave B. Wave C would be incomplete. Even in this scenario, wave C should fall to at least the 13.00 level. That is where wave C will equal wave A and there is an unfilled gap from 8/3/09 at that level.

One more thing to mention is the Fibonacci retracement levels from the 10/14/09 high to the 11/2/09 low. Wave II hit a roadblock at the 61.8% retracement level. The candlestick patterns on the 120-minute chart also indicate a wave II top.

Expect XLF to fall from current levels to the 13.00 price level as the minimum target. The critical resistance level that must hold for my count to be correct is the wave II high of 11/11/09. You can short XLF with a stop loss at the 11/11/09 high or you can buy SKF as the Ultra Short Financial ProShares ETF. SKF price action and wave pattern is the inverse of what I just posted.

Be a smart trader!

Craig Wells

Comment by Craig Wells on November 5, 2009 at 9:39pm

Where did we come from?

XLF has continued to fall since the island reversal surrounding the 10/14/09 top. The upward correction that is taking place should continue for at least part of one day. I have done something a little different this time by posting the 60-min chart. The reason should be obvious.

Where are we now?

The significant point to be made in XLF is the fact that there is five waves down from the 10/14/09 top. It has also broken the support of the 10/2/09 low. Look for much lower prices in the coming weeks.

The reason for the 60-minute chart is to show more clearly the Elliott Wave count I have labeled on the chart. There are five waves down and an incomplete three A-B-C waves up. If incomplete, where will it stop?

The answer is difficult for the reason of there being eleven different Elliott Wave corrective patterns. I do not know which will ultimately take place. Right now, it looks like the price is tracing out a 3-3-5 wave flat. Wave-A is three waves up, wave-B is three waves down, and wave-C is five waves up. Not knowing which form the correction will ultimately take, we still can use Fibonacci retracement levels to help give us some potential targets for XLF.

First is the 38.2% level, which is just above the potential wave-A top. Second is the 50% level, which is right on top of the previous wave four top. If you do not already know much about Elliot Wave analysis, the previous wave-four often draws the price to end the correction more often than not.

One more thing to point out is the gap that sits between the 38.2% and 50% retracement levels. Look for the price to fill that gap.

Now we will focus on TAZ (Traders Action Zone = area between two moving averages). I use the Exponential Moving Average. The chart has the 13, 55, and 233 EMA on the 60-minute chart. The 55 EMA resisted the price three times on 10/23/09, 10/29/09, and 11/4/09. Currently the price has pushed to the 55 EMA again. I look for the price to break it during the next day or two. However, the price potentially can move into another TAZ using the 55 EMA and 233 EMA. Currently, the 233 EMA is very near gap mentioned above.

What can we expect in the future?

Expect XLF to rally to the 50% level of 14.76. There is no reason that the price could not move higher to the 61.8% retracement level if it so chooses. After that, expect much lower prices. The critical level for support is the low of wave-B of 13.99.

Be a smart trader!

Craig

Comment by Craig Wells on November 4, 2009 at 8:38pm

XLF continues to show weakness. It closed down 1.39% today, which is much lower than the rest of the market.

Comment by Craig Wells on October 23, 2009 at 11:05pm

The Financial Fund XLF is again flirting with the trend line that connects the lows of 3/6/09 and 7/8/09. A significant close below that line will potentially signal a major change of trend. The price will most likely retest the March lows.

http://www.etf-technical-analysis.com/ETF-blog.html