Triangulating Bull Fund FAS Challenges Critical Support

May 23, 2011: 12:58 PM CST

With the broad indexes challenging – and in some cases breaking – initial ‘barrier’ support levels, the financial sector is already breaking down into fresh 2011 lows.

We see a similar picture in the triple-leveraged financial bull fund FAS – a popular vehicle for aggressive traders.

What’s the current pattern and critical level to watch in FAS?  Let’s take a look.

The 3x Leveraged Financial Bull Fund FAS just pushed to a New 2011 Low this morning.  That’s to be expected, given the XLF (broader Financial Sector ETF) along with the Russell 1000 Financial Services Index (upon which the FAS is based) also broke to fresh new 2011 lows this morning.

I posted earlier this morning about the “Triple Index Busted Support to Start the May 23 Week,” where I showed two initial Barrier Support Levels ahead of the “Edge of the Cliff” levels which are the March lows (2011 low in all indexes).  Be sure to chart the XLF along with the broader indexes – the Financial Sector is weaker than the broader indexes themselves.

Though we do see a physical new 2011 low this morning, we have two critical support factors at the $26 level as seen below in this price-based chart:

As drawn, the 61.8% Fibonacci Retracement aligns with the rising 200 day Simple Moving Average just above the $26.00 per share level ($26.12 and $26.41 respectively).

If stop-losses aren’t already being triggered today, there is likely another big pocket of stop-losses of buyers under the $26.00 confluence level.

These factors should keep you focused on the $26.00 level as a key reference level between buyers and sellers in this leveraged fund.  The corresponding level to watch in the XLF would be roughly $15.50.

Beyond the $26.00 support level, we have a ‘bigger picture’ Descending Triangle consolidation pattern that had an initial breakdown this morning under the $27.00 trendline level.

From the upper chart, notice how the $27.00 level has been a key barrier reference level between buyers and sellers over the last few months.

Unless we see price rally back inside the triangle here – locking in today as a mean Bear Trap – then we’re likely to see a harsh breakdown under the $26.00 support level, which would correspond with the Stock Market Indexes breaking their initial boundary levels, along with the financial sector dipping further under the 2011 low.

Standard caveats apply when trading – as opposed merely to analyzing – 3x leveraged funds.

Read the prospectus, understand how the fund works (it’s not necessarily how you think it does), and be aware of the higher level of risk (and potential reward) in these funds versus single-leveraged ETFs.

Corey Rosenbloom, CMT
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2 Responses to “Triangulating Bull Fund FAS Challenges Critical Support”

  1. Terlyn12001 Says:

    I was just trading this…noticed a positive divergence intraday, but could be just a pullback.

  2. Charting the Recent Weakness in Financials XLF | Afraid to Blog Says:

    […] the target level of the 200d SMA and November 2010 price high, which I showed in the post:  “Triangulating FAS Challenges Critical Support” (while FAS is different than XLF, the structure on the chart was similar at the target test […]