Until now, financial stocks have been on fire this year.
XLF’s financial ETFs have surged more than 17 percent over the period, roughly doubling from the S&P 500.A shock wave from Archegos’ margin call news last week failed to halt the rally in the bloc.
Matt Maley, chief market strategist at Miller Tabak, said stocks may succumb to short-term weakness after that rally.
“They were overbought a couple of weeks ago,”; Maley told CNBC’s “Trading Nation” on Tuesday. It took a long time for this overbought to actually be resolved and bounced. “
The XLF ETF is trading at 72 in the RSI, an overbought condition that hasn’t been seen since January 2018.Any reading above 70 indicates that the asset was overbought.
However, Maley said the long-term preference looked incredibly strong for the finances.
“The 50-week moving average is approaching the 200-week moving average, in other words, it is very close to the weekly golden cross. The golden cross is usually an uptrend on the chart. But when you get them on a weekly basis, it’s more than that. In fact, we haven’t seen these crosses since 2012, ”Maley said.
“At that time we saw a big assembly, and when the Golden Cross took place, it expanded into more rallies over the years to come,” Maley added.
The golden cross occurs when the 50-period moving average is above 200 periods.It is an uptrend pattern that indicates an accelerating trend to the upside.
Since June 2012 peaking in August 2015, XLF prices have almost doubled.Maley said he wanted to buy the segment on weakness while keeping an eye on if there was a golden cross on the chart.
Federated Hermes portfolio manager Steve Chiavarone is also betting on its long-term strength for finances. He said the rising interest rates and the opening up of the economy should encourage even more profits.
“When you have something as depressing as a certain cycle and finances are, you get a big move and not even get back to where you were before that kind of crisis, and I think that’s the situation for that. Financing here, ”Chiavarone said during the same interview.
After hitting the highs in February 2020, XLF slipped 44% to track levels in March.
“You have a lot of incentives coming into the system, it’s likely to happen, and that’s putting the pressure on rates going up. We see 10 years hit 2% this year, which we think will yield even better returns. more Of the yield curve… I think the fundamental backdrop for finance remains truly strong. We’ll use any weaknesses to add to the overweight in that area, ”Chiavarone said.