Financials were on the rise Monday after Citigroup kicked off earnings season with its latest quarterly results.
According to one top technician, there’s something in the charts suggesting the gains may be a head fake as a number of other big bank names also gear up to report this week.
“The behavior of this group isn’t very much different from the market at all,” said Carter Worth, head of technical analysis at Cornerstone Macro. “There are some things that stick out to me that would suggest to fade [financials] here more than anything else.”
The XLF financials ETF is up more than 38 percent in the past three years, outperforming the broader market’s gains of 34 percent.
Worth’s charting revealed that despite those long-term gains, shares of the XLF have recently broken their uptrend around the $27 level and are down nearly 19 percent from their 52-week intraday high of $30.33 last January.
Financials jumped on the back of the 2016 election as investors bet that potential regulation rollbacks and a more pro-business approach from the Trump administration would give a boost to the space. However Worth illustrates that relative to the broader S&P 500, financials have now given back all of the post-election gains.
“We know that we are nowhere near where we were back during the election two years ago,” he said Friday on “Options Action.” “Basically financials have been underperforming on a relative basis and have undone all of the relative performance. That’s a fairly negative circumstance.”
Additionally Worth revealed that while shares of the XLF have bounced off the December lows they’re now approaching key resistance just above the $24 level where they initially broke trend.
“I’m a seller of XLF,” he said.
Shares of the financials ETF were trading higher Monday afternoon, at around $24.70.
