Financials! We’re seeing financial stocks – seen fastest by the XLF Sector EFT – surge today on a breakout.
Let’s plot the ETF breakout and then compare that quickly with the more aggressive leveraged FAS and FAZ.
As we saw in this morning’s update post, the market surged to new highs again on another big breakout.
I’m highlighting three prior consolidation (rectangle) phases – two large; one small – and the breakouts.
Financials benefit from the expectation of lower taxes and less regulation in the future (governmental policy) and investors are clearly acting eagerly ahead of any actual changes in the current policies.
That’s ultimately how the stock market works – it forecasts the future three to six months ahead.
Right now, the collective wisdom is that the future will be bullish and financials particularly will benefit from the new congress.
Of course, that’s yet to be seen but that doesn’t matter when perception is current reality.
So we have a breakout beyond $25.00 as the strong uptrend continues.
If you don’t like trading the relatively less-volatile ETFs, you can crank up the dial with leveraged funds.
Here’s a quick comparison of FAS (3x bullish) and FAZ (3x bearish):
The point here isn’t to call a trade in these markets but rather to compare them to the XLF.
The FAS 3x leveraged (small cap financials) leveraged bullish fund doubled since mid-2016 and continues through the $50.00 per share level.
Compare it to its more rambunctious sister the FAZ (3x leveraged short/inverse/bear):
FAZ fell 50% from mid-2017 at the same time FAS doubled while underlying XLF rallied roughly 35%.
Such is the power of leverage.
Just keep in mind these funds are best traded as intraday or VERY short-term swing trades instead of investment or longer-term swing trading vehicles.
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Corey Rosenbloom, CMT
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