Two weeks ago, the world’s financial bigwigs got together in Jackson Hole, Wyoming, to talk about world economic policies and trends.
Having not yet received my bigwig membership card, I stayed home and searched out trading ideas instead.
So, while Janet and Mario and the rest of the financial elite were droning on about the prospects for a 2% inflation rate, how best to pare back zero-interest-rate policy (ZIRP), and how big banks like Wells Fargo have lowered their carbon footprint by eliminating customer deposit slips, I was telling you to short bank stocks.
Specifically, we took a look at the Financial Sector Select SPDR Fund (XLF) – an exchange-traded fund made up of bank stocks.
I called it “an ideal short-selling setup.” I suggested traders could short XLF at about $24.80 per share and look for a move at least to the $24.40 level, or lower.
Well, here’s what has happened…
The red arrow indicates where XLF was trading when I suggested shorting the stock. This was an “ideal” setup because XLF was bumping into the resistance of both its 9-day exponential moving average (EMA) and its 50-day moving average (MA).
If it rallied much above resistance, traders could exit the short position for just a small loss. Otherwise, if resistance held, XLF could reverse lower.
Resistance held. XLF closed yesterday at $23.88 per share. Traders who shorted the stock at $24.80 have a $0.92 per share profit. That’s a gain of almost 4% in just two weeks.
Now is the time to close that trade and take the profit.
XLF is testing the support of its mid-June low. And it’s oversold and overextended from its moving average lines. This is a logical area to look for a short-term bounce.
We can always look to get back into a similar short position once XLF works off its oversold conditions. For now, though, traders should book the profits and move to the sidelines.
Best regards and good trading,
Jeff Clark
P.S. Do you see more long-term downside for banks ahead? Send me your thoughts – along with any questions, suggestions, or great trading stories – right here.
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