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Managing Editor’s Note: Today, we’re hearing from our contributing editor Mike Burnick in his weekly feature.
Mike has over 30 years in the investment and financial services industry – from operating as a stockbroker, trader, and research analyst, to running a mutual fund as a registered investment advisor and portfolio manager, to being Research Director for the Sovereign Society, specializing in global ETF and options investing. And he’s been senior analyst at TradeSmith for three years, running Constant Cash Flow, Infinite Income Loop, and Inside TradeSmith.
Here’s Mike…
Expect More Flash Buy Signals in Financial Stocks
BY MIKE BURNICK, CONTRIBUTING EDITOR, MARKET MINUTE
Jeff Clark turned bullish on the financial stocks recently with a well-timed option trade on the SPDR Financial ETF (XLF), with gains of 100% in just a few days!
I’ve been bullish on financial stocks too for similar reasons.
First, XLF has been lagging the market all year. But the sector now looks washed out.
According to our Health (short-term) indicator, 59% of XLF stocks are in the red zone today, while only 10.5% are in the green zone, another 30.26% are in the yellow zone, which is neutral.
That’s a very low reading, which only happens when a sector is extremely oversold already, and likely overdue for a rebound.
Second, our Health (long-term) indicator also shown above tells you most (51.32%) of XLF stocks are safely in the Health green zone on a longer time horizon.
TradeSmith subscribers can quickly view the dynamically updated Health indicator data by clicking on the Markets tab on our website then S&P Sectors.
When you find a sector (or stock) that is healthy long term, neutral short term and oversold all at the same time, that’s a great combination for a possible upside reversal.
Third, our Trade Cycles studies point to a favorable seasonal pattern ahead, October 15 through November 11, when XLF has been up 93% of the time over the past 15 years.
You can dig deeper into the individual stocks within XLF to view their Health status by clicking on the Holdings tab. I’ve sorted it by Health (ST), so stocks that most recently flashed “green” are at the top.
Traders can use the Health (ST) indicator as a “flash buy” signal for a stock when it turns green. And you can see that four XLF stocks just flashed new buy signals within the past month.
Bottom line: Financials may be just starting an upside reversal and with favorable seasonal trends to help support a move higher in price. And remember, over 30% of XLF stocks are in the Health (ST) yellow (neutral) zone, and once they flip green, that would trigger even more “flash buy” signals for financial stocks.
Good investing,
Mike Burnick
Contributing Editor, Market Minute