While looking at some charts after today's session, I noticed the XLF closed above what I consider Lower Momentum on the Daily. I like to look at +1 and -1 Standard Deviations as Momentum levels. As you can see, XLF has traded below Lower Mo for 5 sessions, since the big down day on June 1st. A close above this level is a short-term signal that the significant momentum down has stalled, for the time being. A buy at the open tomorrow, with a Stop below the June 10th low, would project to a target of $15.50 or the Upper Momentum band.
This should lead the broader market, SPY up as well. SPY is in a different position, closing today just above unch and below Lower Mo. For this long XLF position to really pay-off, we want to see SPY close above its' Lower Mo, currently at $128.61. This would really put the XLF in a position to test it's Upper Mo, mentioned above.
For those more inclined to trade the XLF/SPY spread, which is not one I generally watch, the low risk entry occurred on June 10th when the spread crossed and closed above the Lower Mo. The 1yr correlation = 87.3%, 30 day correlation = 96.5% and the 1yr cointegration confidence level is 44%. I am generally not interested in equity spreads with such a low cointegration confidence level. Now that does not mean there is not a trade here. This spread closed above it's Upper Mo today. The low risk trade would be to buy this spread on the open (XLF-.12*SPY), watch the outrights for the levels mentioned above and look for this spread to trade above it's Upper Mo into the resistance level near $0.00 as the Bollinger Bands begin a potential process of divergence.
Be Well,
Hemi
No comments:
Post a Comment